When you apply for a loan, your credit score is the most important factor in determining whether or not the lender will trust you.
CIBIL, a TransUnion subsidiary, is one of the RBI-approved credit rating agencies in charge of generating credit scores for individuals and businesses based on data provided by banks and lending institutions.
The CIBIL score allows you to apply for credit products like loans and credit cards. While a good CIBIL score makes it easy to get credit, a low CIBIL score can make it difficult to get credit when you need it.
Here is a complete guide with every detail that you need to know about the CIBIL score.
A CIBIL score is your credit score as determined by the Credit Information Bureau (India) Limited, abbreviated as CIBIL.
This score is a three-digit numerical 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
Credit utilisation percentage
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.
Lenders use your credit score to assess the risk of lending you money. As a result, your credit score is especially important when it comes to unsecured or collateral-free loans, and it can have a significant impact on your eligibility for personal loans.
Your credit score is a number that reflects your creditworthiness. Consider your credit score to be a batting average. If your batting average is greater than 50, it indicates that you have a consistent scoring record of 50 and are a good player.
Similarly, a high credit score indicates that you have borrowed and repaid credit responsibly in the past.
A good CIBIL score for loans is the same as a good CIBIL score for any other purpose, i.e. any score 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. With a good CIBIL score, you can get a better deal with a lower interest rate, a longer repayment period, a larger loan amount, and more.
Furthermore, such a score will result in a faster and easier documentation process. If you have a CIBIL score between 700 and 900, 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.
A good CIBIL score is one that ranges between 700 and 900.
A high CIBIL score will result in numerous advantages, including faster approval, a lower interest rate on the credit facility, a larger loan amount, a longer repayment period, and more.
Furthermore, multiple lenders will be willing to approve your loan, allowing you to select the lender from whom you wish to borrow money.
CIBIL scores can range from 300 to 900, with 900 indicating maximum creditworthiness. A credit report with a CIBIL score of 750 or higher is ideal and will help you qualify for personal loans and credit cards.
However, if your CIBIL score is less than 750, you will have a more difficult time borrowing money from banks and NBFCs. If your credit score is close to 750, you may be offered a loan with a higher interest rate, or your application may be rejected outright if it is much lower. As a result, maintaining a CIBIL score above 750 is critical.
Let us take a look at the CIBIL score required for various types of loans.
Type of loan
CIBIL Score Details
Used car loan
Knowing how to improve your CIBIL score is critical if you have no prior experience with credit or are looking to recover from a financial crisis. Increasing your CIBIL score is relatively simple, but it requires consistent and diligent effort on your part.
Check out these smart tips to raise your CIBIL score
Be a co-signer on a loan only if you don't need to borrow at the same time.
Avoid taking on too many debts in a short period of time.
Make sure to pay off all of your EMIs and credit card bills on time.
Use debt consolidation loans only when necessary to avoid having your debts turned over to a debt collection agency.
Be wary of taking out loans without a proper repayment plan in place.
To keep your costs low, always negotiate your interest rate with lenders.
Don't borrow the entire amount for which you've been sanctioned.
You can keep your CIBIL score high by following these simple steps:
Pay your EMIs on time to establish a good track record.
Avoid having unused credit cards; cancel dormant credit cards.
Set payment reminders for your credit cards or limit your use to one credit card.
Avoid re-applying for loans or credit cards that you were not approved for the first time.
Don't submit too many loan applications in a short period of time.
Choose long loan terms with caution, and try to make part-payments whenever possible.
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. Payment Delayed
Even a single late payment or payments made after the due date can have an effect on your credit score.
You may choose to ignore the payment and use the funds for other emergency purposes. However, this payment delay can make you appear irresponsible when it comes to handling finances, contributing to a lower credit score.
2. Several Credit Applications
You may have an urgent need for cash and have applied for credit with multiple lenders in a short period of time. This will portray you as someone who is in desperate need of money.
When one of these lenders sends an inquiry request to a credit rating agency, the inquiry is recorded in your credit report, lowering your score.
Multiple applications and inquiries indicate that you are desperate for credit; however, they also indicate that you may be unable to repay if a loan is granted.
3. Extreme Use of Credit Limit
Lenders determine a credit limit for each consumer based on his income and debt-service ratio. The credit limit specifies how much money he can spend on repayments after taking into account his other obligations.
If you use more than half of your credit limit on a regular basis, your credit score may suffer. It demonstrates that you are inept at managing finances and expenses. To maintain a good credit score, make sure that your expenses do not exceed 50% of your credit limit.
4. Acting as Guarantor for a Defaulter’s loan
While this does not directly have an impact on the guarantor’s CIBIL score, if the applicant defaults on the said loan it can have a detrimental effect on the guarantor. Therefore, acting as a guarantor is never advised.
The CIBIL credit report is essentially a detailed document that displays an individual’s entire credit record and history. This report has multiple details such as personal information, contact details, employment history, credit cards and limits, credit balances, duration of the credit, and so on. This report is usually procured by lenders such as banks and Non-Banking Financial Companies (NBFCs), landlords, and creditors. The CIBIL report comprises of four main sections:
This section has details related to all credit accounts such as type of credit that was borrowed, name of the lender, account number, date the account was opened on, most recent payment, amount of loan borrowed, current balance, and a monthly record of up to 3 years of repayment.
Details of major financial issues both previous and current such as bankruptcies and criminal arrests are in this section. The information in this section has a significant impact on the credit score as more the number of financial slip-ups, lower is the credit score.
This section contains details of all credit accounts the individual may have had in the past or even currently along with information about the balance. The account information is divided into revolving accounts, instalment accounts, real estate accounts, and collection accounts.
This is a section that lists information regarding third parties that have accessed an individual’s credit report within a period of 2 years. Each time a lender checks an individual’s credit report, it is counted as an inquiry. Lenders and financial institutions may be allowed to view only a small section of this although the applicant can view all credit inquiries. These inquiries are based on loan or credit card applications. In order to check the CIBIL score, one has to visit CIBIL’s website, pay a small fee, and then check the score.
Certain sites, apart from the official CIBIL website, offer customers the opportunity to find out their CIBIL score. While one cannot directly find their CIBIL credit score on our Money View website at present, the credit report and score will be shared with those who apply for a loan through Money View regardless of whether the application is accepted or rejected.
Having a good credit score is advantageous in every way. While a good score is not built in a day, there are multiple ways in which one can ensure a CIBIL score of over 750. Avoiding bad financial decisions, paying EMIs on time, and ensuring proper spending are just some of the ways through which one can enjoy a good CIBIL credit score and a secure financial future as well.
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