Over the years, the industry of Loan has become essential for both the Lenders and the Borrowers. Therefore, in order to manage the risk better, it is significant for the lending authorities to be able to analyze the worthiness of a customer. And, in regard to the loan seekers, they should be able to understand the chances of their approval. Hence, to promote a healthier credit system of our country, the CIBIL Score was established.
CIBIL, India’s first Credit Information Company, stands for Credit Information Bureau (India) Limited. It was established in 2000 and since then, it is the worthy participant of our financial system. Furthermore, this company maintains the credit information of individuals proposed by the institutions that are registered with them. Moreover, TransUnion, International Inc and Dun and Bradstreet serve in association with CIBIL.
What is the CIBIL Score?
A powerful three-digit number in the banking industry that decides the creditworthiness of a person is asserted as The Credit Score or CIBIL Score. This Score is not just only a requirement that a person has to fulfill in order to get a loan. In fact, it is the basis on which Loan approval significantly depends on. All the lending institutions heavily depend upon The Credit Information Reports that portray the Credit Score, in order to approve any loan. A Credit Score is produced after taking detailed credit information into consideration. And, it normally ranges from 300-900.
What Do You Mean By Good And Bad Credit Score?
Basically, a credit score is the measure of your seriousness of paying back your debts to the bank. If you return your debts on time, that is your Credit Card bills or your EMI ’s, you will have a good credit score otherwise it will be low. A good CIBIL Score projects responsible and good repayment behavior of the customer that further helps the lenders to build trust in them.
Hence, In order to get quick loan approvals or higher credit limits one should maintain a healthy CIBIL Score. The Range of Scores considered good or bad are stated below:
- Excellent Credit Score - Above 750.
- Good Credit Score - Between 700 to 750.
- Poor Credit Score - Below 550
Note: In Case, if a person has not availed any loan, the Credit Score remains -1
Factors Affecting CIBIL Score Negatively
The following factors can affect your creditworthiness:
- Re-payment History: To begin with, Paying the bills on time plays a major role in the development of a good Credit Score. The Lending Institutions consider an individual serious and capable of clearing existing debts if one has a good payment history. Late Credit Card payments or irregular Payment of EMI can adversely affect the Credit Score.
- Unsecured Services: Next, Though unsecured services are quite impressive, But a high percentage of these loans may affect your Credit Score. Hence, by maintaining a good combination of both secured and unsecured services can positively affect your Credit Score.
- Credit Card Balance: Moreover, There can be a negative effect on the Credit Score if there is an increase in the current balance of your Credit Card. Therefore, one should not keep any pending Credit Card bills, as it enhances your repayment burden.
- The Number of Loans and Cards: Furthermore, An applicant having multiple Credit Cards or loans tend to have lower Credit Score in contrast to those who take one loan at a time.
- Multiple Number of Hard Queries: Finally, Hard Query is a term used when a lender checks the credit score of an applicant. Thus, multiple hard queries can also have a negative effect on the Credit Score.
How Can You Improve Your CIBIL Score?
- Stop Applying for Credit After Rejection: Firstly, If you want to avail a Loan or Credit Card but you have been rejected by any lending authority. Then, do not apply in any other lending institution immediately. In fact, wait for the scores to improve.
- Low Application Frequency: Secondly, when an applicant applies for a loan, banks check the credit score of them. Therefore, applying for a loan or credit cards too many times could bring down your credit score and display credit hungry behavior of a person.
- Avoid Loan or Credit Card Settlements: Next, Sometimes people opt to settle the loan amount or the bills of credit cards. That is, a deal is made between the applicant and the lender to close the debt at a lower amount. In such cases, the settlement is reflected on the credit report that further negatively affects the Credit Score and also makes the banks unwilling to offer fresh credit.
- On-time Payments: Moreover, the applicant should prioritize the repayment of the debts. If you are delaying the payment of your bills then make it a point to pay on time in order to improve your score. Also, the applicant can restructure the EMI plan with the help of the bank so as to avoid any delay in the payments.
- Take Different types of Loans: Also, the applicants should not only avail unsecured services. An individual should have a balanced combination of both secured services like a gold loan and unsecured loans like personal loans.
- Timely Payment of Credit Card Bills: In addition, an individual should avoid using the maximum card limit. This can decrease the credit score of a person. And, always try a pay either the whole amount due on the credit card or at least a sizable portion.
- Avoid Being a co-applicant: Sometimes, an individual has to suffer even if he is not at fault. In such a case, even if the loan seeker has not paid the amount, you are considered at fault. That further decreases your Credit Score.
Advantages of Good Credit Score
- Quick Loan Approvals: To start with, if an individual is having a good credit score, the approval of the loan is done within some hours. As this score projects the authenticity of the loan applicant. Hence, allowing the banks and NBFC’s to trust the customer.
- Promotes Eligibility for Loan: Next, most of the banks rely on the Credit Score of the applicant. Thus, a good credit history enhances the eligibility of the applicant.
- Better Interest Rates: Another advantage, people having a good Credit Score are given rebates on the interest rate. Thus, a healthy Cibil Score puts a person in the position to negotiate for a lower rate of interests.
- High Credit Limit: If an applicant has a Credit score of above 750, that means he is a responsible borrower. Thus, you are provided with greater credit card limits and better benefits.
- The option of Longer Tenure: In addition, people with higher credit score can request for a longer loan tenure. Interestingly, an excellent Credit Score can help to extend a loan period of & years into 25 years.
- Better Benefits and Rewards: Lastly, a person with a high credit score can enjoy a lot of credit card benefits and rewards. That includes access to the world-class lounge and also benefits of traveling miles.