TransUnion CIBIL is India’s oldest Credit Information Company (CIC) and the credit score calculated by it is known as CIBIL score. However, one should bear in mind that CIBIL is not the only credit bureau operating in India, there are 3 others – Equifax, Experian and CRIF Highmark all of which also provide their own credit scores. That said, CIBIL score still remains the preferred credit scoring model in India.
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What is a High CIBIL Score?
CIBIL score is a 3-digit numeric summary of your credit history and its ranges between 300 and 900. As per records provided by TransUnion CIBIL, credit card and loan applicants with a score closer to 900 (such as 750 or higher) have the highest chances of approval. This is the key reason why a CIBIL score of 750 and higher is generally considered to be a good score.
Typically a high score indicates responsible credit behavior in the past and good repayment capacity that indicates a lower risk of default for the lender. Thus credit score such as your CIBIL score is one of the first things that lenders consider when evaluating your loan or credit card application.
What are the Benefits of having a High CIBIL Score?
While your CIBIL score is not the only thing that a lender considers when evaluating your loan or credit card application, the following are some key benefits commonly associated with a high score:
1. Higher Chances of Approval: A high CIBIL score indicates responsible credit behaviour, clean repayment track record and a lower risk of default for the lender which typically increases the applicant’s chances of being approved for additional credit. However, applicants may need to fulfill additional eligibility criteria to qualify for new loans or credit cards.
2. Lower Interest Rates: Applicants with a high CIBIL score are charged a lower rate of interest by lenders as compared to those with lower scores. Thus a high score can help you save significantly on the interest payment applicable to your loan.
3. Increased access to Pre-approved Loans: A high CIBIL score may also often increase your chances of accessing pre-approved loan and credit card offers. These offers can give you quicker access to credit as they usually involve minimal documentation and shorter approval times.
4. Easier Access to Premium Credit Cards: Before approving a credit card application, one of the first things lenders consider the CIBIL score of the applicant. A high CIBIL score typically indicates higher credit-worthiness and responsible credit behaviour. As a result, lenders are more inclined to grant such applicants access to premium credit cards that feature better rewards in the form of quicker accrual of reward points, cashback, etc.
5. Approval for Higher Loan Amount/ Credit Card Limit: A high CIBIL score can also increase your chances of being approved for higher limits on your loans and credit cards. This is because a higher score usually indicates a lower risk of default for the lender and responsible credit behaviour.
6. Possibility of Approval for Longer Tenure Loans: A longer tenure usually involves a higher degree of risk for the lender. However, a good CIBIL score may help you avail longer repayment tenure on your loan than those with a lower score. When a loan is repaid over a long period of time, it results in smaller EMIs, lower monthly credit burden and may help you finance your monthly expenses in a better way.
Typically those with a high score may be able to avail one or more of above benefits, however, the availability of these benefits is as per the lender’s discretion based on applicable criteria.
Ways to Improve Your CIBIL Score
Your CIBIL score is a numerical summary of your credit report. There are several factors that make up (impact) your CIBIL score including your repayment history, credit mix, credit utilization ratio, age of credit history, etc. Though the exact breakup of these several factors that make up your CIBIL score cannot be known as it is protected by CIBIL’s own proprietary algorithm, the following are a few key tips that could help you increase or improve your CIBIL score:
1. Maintain Clean Repayment track record: Pay your credit card dues and loan EMIs in full and on time. Late payments and missed payments can adversely affect your score. Ensuring timely repayment of debts over a longer period positively impacts your CIBIL score as it indicates responsible credit behaviour over time.
2. Maintain a Low Credit Utilisation Ratio: Credit utilisation ratio is calculated by dividing the amount of credit used by the available credit limit usually on a monthly basis. It indicates the extent of your dependence on credit. Maintaining a low credit utilisation ratio of 30% or lower indicates lower dependence on credit and a lower repayment burden and thus higher credit worthiness. This in turn positively impacts your CIBIL score and increases your chances of securing additional credit.
3. Regularly Checking of Your CIBIL Report for Errors: Regularly check your CIBIL report for administrative errors and fraudulent usage. These must be reported and rectified in a timely manner using the prescribed CIBIL dispute resolution procedure. This may help you increase your CIBIL score.
Also Know: How to remove any dispute on my CIBIL score?
4. Avoid Multiple Simultaneous Loan Inquiries/Applications: Avoid making multiple loan applications and inquiries with several lenders at the same time. It shows you to be credit hungry and also increases the number of hard inquiries on your credit report, which adversely affects your score.
5. Increase in Credit Limit: Getting banks to increase the credit limit on your card may have a positive impact on your CIBIL score. A higher credit limit can help you decrease the credit utilization ratio as the available credit limit increases as long as the usage remains at the same level. However, making frequent requests for increasing the credit limit on your cards may increase the number of hard inquiries on your which may in turn adversely affect your CIBIL score.
6. Avoid Settling Your Debts: You should always try and pay off your debts in full and opt for a settlement only as a last resort. Though settling your debt may reduce the burden of debt, it indicates towards an inability to repay your debts and may thereby negatively impact your CIBIL score.
From the above information, it should be easy to conclude that good credit habits and responsible credit behavior are the best means to build and maintain a high CIBIL score, which makes you eligible to avail credit when you need it most and on more favourable terms.