Snneha Lukaa
Do you know what a CIBIL Score is? When applying for a loan are you aware that your CIBIL Score is checked? Do you know that this score can have a great impact on your financial future? Read this article to understand the five important things you should know about your CIBIL Score.
What is CIBIL Score?
CIBIL Score is nothing but a three-digit numeric summary of your credit behaviour. The score is generated by TransUnion CIBIL based on the data of your financial transactions provided by banks and financial institutions. The score is derived based on your loan accounts, credit inquiries, credit card usage, EMI payment status, outstanding dues and other factors. The score helps lenders determine your creditworthiness and your repayment capability. The score ranges from 300-900 with 300 being the lowest and 900 the highest.
How is CIBIL Score calculated?
CIBIL Score is calculated based on the below four factors:
Repayment history: Your credit repayment history has an impact of over 30% on your credit report. Defaulting on EMI payments or making late payment can have a significant negative impact on your credit score.
Credit mix: Holding too many unsecured loans like personal loan and credit cards can hurt your credit score, whereas maintaining a healthy credit mix i.e. mixed bag of secured loans like car loan, home loan and unsecured loan can have a positive impact on your score.
Making multiple credit inquiries: Making too many credit inquiries has a negative impact on your credit score. For instance, even a single inquiry made for a credit card or personal loan is recorded by the lender and sent to the credit bureau. Hence, if your loan application is rejected, then it has a significant impact on your credit score and even the next lender who you apply with can read the inquiry in your report and reject the application. Therefore, it is best to avoid making multiple inquiries.
High credit utilisation: A high credit utilization reflects a rising debt which could have a negative impact on your credit score.
How to improve CIBIL Score?
Avoid late payment of loan EMIs and credit card bills
- Do not use a credit card for every purchase. Ensure you don’t use more than 30% of your credit card limit
- Maintain a healthy mix of credit i.e. secured and unsecured loans
- Avoid making multiple credit inquiries
- Review your credit report frequently to check for errors, if any
- If you are a loan guarantor for your friend or family then ensure they don’t default on the loan EMI payments as it can have a negative impact on your score. Also, you would be liable to pay the loan EMIs in case the primary loan applicant is unable to repay the loan.
- Do not continuously seek for credit cards
What are the reasons for low CIBIL Score?
Below are few reasons for low CIBIL Score
- Irresponsible credit behaviour i.e. missing out on EMI payments
- Holding too many loan accounts and credit cards
- Making multiple credit inquiries for availing loan or credit card
- Paying only the minimum amount due on credit card and not paying the full due amount
- Closing old credit card accounts
- Not checking the credit report
What is the required CIBIL Score to get a personal loan?
Ideally, having a credit score of 750 is considered to be a good one for availing personal loans from banks. However, online lenders like Credit Fair today offer you instant personal loan at CIBIL Score of 600.
How to check CIBIL Score online?
You can generate free CIBIL Score online through the official website of TransUnion CIBIL.
What are the benefits of having a good CIBIL Score?
Having a good CIBIL Score offers you the below benefits:
- Quick approval on loans and credit cards
- High loan amount
- Low interest rates