What is a Good CIBIL Score?
Credit Information Bureau of India Limited or popularly known as CIBIL is India’s first credit bureau that collates details of a borrower’s credit history to formulate the credit score. Banks and lending institutions rely on the credit score also known as TransUnion CIBIL score to evaluate an individual’s creditworthiness and repayment ability before giving loan approvals.
CIBIL credit score is a 3-digit number which is calculated on the basis of information provided by various lenders regarding the loan or debts of the borrower. CIBIL compares the credit history of past three years in the calculation of your credit score. Apart from the credit history, there are few other factors, such as credit utilization ratio, number of outstanding loans, loan servicing term and percentage of unsecured loans in the portfolio that may impact your credit score.
Generally, your credit score ranges between 300 and 900, wherein score closest to 900 is considered as better to avail loans on lesser interest rates from lenders.
Benefits of a good CIBIL score
Quick loan sanctioning
CIBIL score give the first impression to the lender about the borrower’s creditworthiness. Therefore, the first step in the loan approval process is checking the credit score of the borrower. When you give your loan application to the lender, it first checks your credit score and if satisfied with credit score, then only it proceeds for further processing of your application. So, if you maintain a good credit score, the lender will look at other factors, such as your repayment capabilities and so on, while if you have a lower credit score, the lender will show reluctance in offering you loan. Your application may be rejected out-rightly.
Factors that Affect Your Credit Score
Lower interest rates
A good CIBIL score gives you the negotiation and comparison options. Higher the CIBIL score, more benefits you may avail from various lenders. You might be aware of several loans, such as personal loan, home loan and car loan, where the interest rates vary in a range. If you maintain a high CIBIL score, you can bargain for a lower interest rate with your lender. On the other hand, if you have a low CIBIL score you won’t have any negotiation option. In fact, you may have to pay a higher interest rate to compensate for the low credit score that you have.
A good CIBIL score can even get your prepayment charges and processing fee waived off. Not every bank but many offer this feature.
Applying for a credit card
Banks issuing credit cards will always check your credit score before issuing you credit card. A credit score which is derived from the credit history shows you past payment track record to the issuer. In fact, numerous first time borrowers, who haven’t availed any kind of credit in the past and hence doesn’t have any credit score shall find it difficult to get credit card issued.
Steps to increase your CIBIL score
Paying off unpaid dues
Any credit card balance should be removed at first instance. So try spending as much as you can repay within the billing date. Its always recommended to close your loan account by paying off any unpaid dues. Your unpaid dues or heavy balances on credit cards may pull your score down. Paying off your dues shall positively increase CIBIL score. Its suggested to use just one or two credit cards at a time, as it becomes easier to keep track of repayment.
Any error in your credit report may be disputed immediately with credit bureau after reviewing your CIBIL report or if there is any discrepancy in record with respect to any loan or credit card. Any financial institution may resolve to your dispute within approximately 30 days. Your credit score will improve once dispute is resolved. During this process, try not to apply for any new credit.
Do not close your oldest credit card
We all think of closing down our old credit card accounts that we hardly use. But to increase your CIBIL score you should not close any older credit card which may result in decreasing your credit score. Actually, a good credit card account that you have managed well with timely payment is an added advantage. It gives the much required longevity to your CIBIL score, which is one of the factors that lenders consider while evaluating your application for any loan.
Maintain your credit utilization ratio
Usage of your credit card should be limited to certain important transactions. Moreover, one should keep his or her credit utilization ratio below 30 – 40 percent to avail loan on lesser interest rates. Also by keeping your monthly balances low, you shall see a rise in your CIBIL score. You can also spread your expenditure over two-three credit cards instead of just one, to lower per card utilization percentage.
Increase your credit limit
When you request your bank to raise your credit limit, it does not necessarily mean that you get a chance to spend beyond your means. If your credit history is good, then your lender may increase your CIBIL score. Therefore, this hike in your credit score may have number of plus points stored for you in future.
Avoid applying for multiple loans
Avoid making multiple applications for loans simultaneously. It will depict one as a credit hungry person and affects credit score negatively. Keep the percentage of loans in your portfolio lower by avoid applying for unsecured loans. As unsecured loans have a higher interest rate, a higher percentage of unsecured loans shows higher burden on your finances and thus impact your credit score. So, you can build a higher credit score by keeping the percentage of unsecured loans at a lower level. know all the benefits of a good credit score, you may be in better position to apply for any loan or credit card. You can check your CIBIL score anytime for free by clicking on Paisabazaar.com, also get regular credit updates.