Every time you pay off a credit card or pay an EMI on time, you know what happens? Your CIBIL gets better. Yes, paying on time matters. But, for those who find this to be brand new information, here is just everything that you would have to know when it comes to CIBIL score.
What is a CIBIL Score?
The most well-known of the four credit data organizations that is licensed by the Reserve Bank or RBI is the Credit Information Bureau (India) Limited (CIBIL). The RBI has also licensed three more companies to operate as credit information companies. Experian, Equifax, and Highmark are the three companies. The CIBIL score – on the other hand, is the most widely used credit score in India. Let’s look into what a CIBIL score is.
CIBIL Limited keeps credit records on 600 million people and 32 million enterprises. TransUnion, an American multinational corporation, owns CIBIL India. As a result, credit scores in India are referred to as the CIBIL Transunion score.
The CIBIL Score – which varies from 300 to 900, it is a three-digit numerical of your credit history, rating, and report. The higher your credit score is – the better your credit rating.
Let’s just say you are planning on taking a Canara Bank home loan; the first thing the bank would look at would be your CIBIL.
The Significance of Your CIBIL
When applying for a loan, you must first determine your CIBIL score. Will I be able to obtain credit? Your bank will examine your credit history and create a credit report to determine your creditworthiness.
A credit history is the data record of the borrower’s debt payments. A credit report is the record of a borrower’s credit history obtained from a variety of sources, such as banks, credit card companies, collection agencies, and governments. The credit score of a borrower is the output of a mathematical algorithm that uses credit information to forecast how creditworthy you are. A CIBIL credit score will take time to build, and it often takes 18 to 36 months or more of credit usage to achieve an acceptable credit score.
The CIBIL score is very important in the loan application procedure. When someone applies for a loan at a bank or financial institution, the lender initially looks at the applicant’s CIBIL score and reports. If the CIBIL score is poor, the bank may reject the application entirely. If the CIBIL score is high, the lender will investigate the application and examine additional factors to determine whether the applicant is creditworthy.
The CIBIL score serves as the lender’s first impression; the higher the score, the better your chances of the loan being evaluated and authorized. The choice to lend is entirely up to the bank, and CIBIL has no say in whether or not the loan/credit card is approved.
A score of 700 is generally regarded as good.
The Attributes that Can Make Up for a Good CIBIL Score
CIBIL takes numerous criteria into account. Among the factors evaluated are:
- a) Current Credit Balance: This is also mentioned in the CIBIL report’s Accounts section. It displays the amount owed on any loans you have taken out. So, if you take out a car loan and have paid off most of it but still have Rs. 50,000 left, Rs. 50,000 will be reflected here for your car loan. It essentially displays how much debt you still owe. This figure should be as low as possible. Lenders would be hesitant to provide to someone who has a high number of current loans outstanding when asking for a new one.
- b) Payment History: Your payment history includes information such as your Days Past Due (DPD) and the month and year of payment. DPD specifies how many days after the due date you made your payment. If the number is zero, everything is fine. It counts as a minus if your payment is even a day or two late. The later you pay, the worse this becomes. If you have many credit cards, including some that you don’t use but still have, you must be aware of the terms and conditions for each one. Some cards have no costs, while others start charging fees after the second year. If this is the case, and you do not pay the fees, most likely because you are ignorant of them, the fees and interest continue to accrue, and this is reflected in your CIR.
- c) Enquiries: If you have lately applied for a few loans, this makes you look ‘credit hungry .’It gives the impression that you are in desperate need of money. This is also detrimental to your application.
- d) Availed Credit Facilities: If you have just obtained new credit, your capacity to repay a new loan will be limited. This is bad news for your application.
The Perks of Having a CIBIL
A good credit score not only helps you acquire loan approvals but it also provides the following benefits:
- A high credit score entitles you to the most affordable interest rates.
- It allows you to obtain pre-approved loans.
- A high CIBIL score can help you obtain a credit card with excellent rewards and advantages.
- It enables you to bargain with lenders to get a better offer.
- The higher that your credit score is – the greater your credit card limit.
- It encourages lenders to approve your loan application as soon as possible.
- A good credit score would give you a longer payback period.
Conclusion
Knowing your CIBIL helps, but maintaining your CIBIL can get you places. This piece might have shown you the significance of a CIBIL score; therefore, hereafter, you can keep it at its max.
