A Comprehensive Guide To CIBIL Scores

The CIBIL score is an important factor that lenders take into account before approving your loan. CIBIL is the most commonly used credit score in India. 

It is an RBI-approved credit rating agency that generates credit scores for individuals and businesses. The ratings or scores are based on data provided by banks and lending institutions.

A higher CIBIL score is considered better and makes it easy to get credit. Here is a complete guide with every detail that you need to know about the CIBIL score.

What is a CIBIL Score and Why is It Important?

CIBIL, which is short for Credit Information Bureau India Limited, also known as TransUnion CIBIL, determines your credit score.

This score is a three-digit value that ranges from 300 to 900 and indicates your creditworthiness. Your CIBIL score is influenced by four major factors, which are as follows -

• Previous credit or repayment history

• Additional debt

• Credit distribution

• Credit utilisation ratio

Why is CIBIL Score Important?

Your credit score is significant because it demonstrates how trustworthy or risky you are as a borrower. 

As a result, it has a direct impact on whether you are eligible for a loan, how much the lender will offer you as a loan amount, and the interest rate you will be charged.

Your credit score is especially important when it comes to unsecured or collateral-free loans. A high credit score indicates that you have borrowed and repaid credit responsibly in the past.

In short, a good CIBIL score helps you with the following things -

• Negotiating a longer tenure

• Easier loan approvals

• Higher loan amounts

• Lower interest rates

• Reducing the need for documentation

• Proves you as responsible and less risky

What is the Good CIBIL Score for Loan Approval?

A good CIBIL score ranges between 700 and 900. A high score increases the likelihood of your loan application being approved.

A credit score of 700 or higher is considered favorable for obtaining a personal loan, a car loan, or a home loan. A good CIBIL score helps you to get a loan with more favourable terms such as a lower interest rate, a longer repayment period, a larger loan amount, and more.

Furthermore, a good score will result in a faster and easier documentation process. If you have a CIBIL score between 700 and 900 and you are applying for a home loan, you can expect to borrow up to 80% of the total cost of the property.

However, because a personal loan is an unsecured loan, such standards cannot be established. The loan amount may vary depending on the purpose of the loan and your credit score.

There is no specific score that qualifies you for a car loan. To be confident when applying for a car loan, a credit score of at least 700 is recommended.

What is a ‘Good’ CIBIL Score?

CIBIL scores are calculated in a range of 300 to 900. The higher your score, the better it is. But a score above 700 is considered to be a good CIBIL score. 

Here is a detailed table that shows which is a good CIBIL score range to have -

How Can You Build Your CIBIL Score?

Since your credit score is so important in determining your creditworthiness and overall financial health, you should work on improving it. There are certain tips and tricks to increasing your CIBIL score. However, you must remember that it takes patience and consistent effort. 

Increase your CIBIL score

Your CIBIL score depends on your financial behavior and you can follow steps to improve it. If you want to build a good CIBIL score, here are some tips for you -

• Check your CIBIL score regularly

• If you see any enquiries that were not authorized by you or any errors, raise a dispute, and get them rectified

• Pay your credit card bills in full every month

• If you are having difficulty paying the bill on a certain month, at least pay the minimum amount by the due date 

• Don’t miss the EMI payment dates for your ongoing loans

• Take a variety of credit products instead of opting for only a single type of credit

• Maintain your credit utilization ratio under 30%

• Don’t take unplanned and whimsical loans

• Plan your finances by calculating the EMI for loans, before you apply for them

• Be a co-signer on a loan only if you don't need to borrow at the same time

• To keep your costs low, always negotiate your interest rate with lenders

Which Factors Affect Your CIBIL Score?

Even if you are unaware of the consequences of your actions, you may be lowering your credit score. Here is a list of a few actions that will directly affect your credit score-

1. Delayed Payments

Even a single late payment or payments made after the due date can affect your credit score.

The more regular you are with your payments, the higher your score will be. Thus, you should always pay your EMIs and credit card bills in full within the due date.

2. Number of Enquiries 

Whenever you apply for a credit product, the lender checks your credit score. This is referred to as a hard pull, and it shows in the ‘enquiry’ section of your credit report. Too many hard credit enquiries affect your credit report, and in turn, your credit score.

To avoid this, refrain from applying for too many credit cards or loans at the same time. 

3. Credit Utilization Ratio (CUR)

Your credit utilization ratio refers to the percentage of credit you have utilized to the credit available to you. You should ideally maintain a CUR below 30%.

Having a high CUR may make you look excessively dependent on credit. A low credit utilization ratio impacts your credit score positively, and you are more likely to get loan approvals. 

4. Credit Age 

Credit age is the total number of active credit histories you have. A longer credit history allows for greater trust in you by the lender.

Thus, you should be very careful about closing old credit card accounts. Never close your oldest credit card, and try to keep it active by making small purchases and paying the bills on time.

5. Credit Mix

A good mix of credit, including credit cards, secured, and unsecured loans have a positive impact on your credit score. It shows the lenders that you can responsibly manage a variety of credit products successfully.

A good credit mix with timely repayments is one of the major factors affecting credit rating. 

6. Status of Old Loans

Any old loans that have the status of ‘settled’ or are not closed may harm your CIBIL score. 

In case you have any old loans that were not paid in full, or were settled, you may consider getting in touch with your lender and paying the dues. After that, you can request them to close the loan account.

7. Errors in Your Credit Report

Sometimes credit companies or your lenders might make errors while reporting your payments or your loan status. These may affect your credit score negatively.

You must check your credit score regularly for any discrepancies. If you happen to spot any, you should raise a dispute and get it rectified.

Multiple factors affect your CIBIL score, but the most important ones are your repayment history, credit mix, credit utilization ratio, and credit inquiries. 

However, factors like your income, employment, bank balance, etc. have no impact on your CIBIL score. It is essential to know what are the factors that affect credit score so you can make wise decisions and build a robust credit report.