Published on May 27, 2020Updated on Jan 29, 2024
CIBIL score or credit score as it is generically known, is one of the important factors that we look into when prospective borrowers apply for loans. Good credit score represents the economic stability of an individual which in turn makes financial transactions easier.
A CIBIL score is a three-digit numerical expression that ranges between 300-900 based on extensive analysis and a detailed examination of a person’s credit files and history, denoting the creditworthiness of an individual.
A good CIBIL score lies between 720-900 and is determined solely on the basis of your credit behaviour and history. It yields multiple benefits to the borrower, including quick approvals, lower interest rates, and a higher loan amount.
For an unsecured loan, a CIBIL score of 750 or above is termed a good CIBIL score. A borrower with a good CIBIL score has a higher chance of getting the best interest rate on a loan and also experiences a quicker approval process. It helps you to save money and time in the long run.
Hence, it is evident that a score between 700-900 will be considered a good credit score.
Below is the table of what a particular CIBIL Score signifies and consequently the probability of approval of loans.
It also helps us understand what is considered as a “good” CIBIL score and the minimum credit score required for loan eligibility:
Urgent Action Needed
Murky and doubtful
Satisfactory or fair
The calculation of a CIBIL score requires consideration of parameters like:
If you wish to check your CIBIL score, you can follow these steps:
Your CIBIL report will contain your score, credit summary, financial status according to employment, personal and contact information, and credit history of inquiries.
A good credit score has ample benefits. Hence, an aspiring loan applicant must be aware of the benefits before applying for a loan, to arrive at the loan most suited to his needs and requirements.
Every lender pulls out your credit report and checks your credit score once you apply for a loan or credit card. This is known as a hard inquiry, and your credit score takes a hit whenever such an inquiry is undertaken. The impact can be irrevocably adverse if your application gets rejected. But in the case of a good credit score, the probability of the approval of your loan is extremely high due to your sound credit history and past instances of regular and timely repayments of the loan amount.
Must Read: How to Check CIBIL Score For Personal Loan?
A good credit score also determines that you have not taken multiple loans from multiple lenders; that you have not piled up debt, making it difficult for you to repay the loan amount. Thus, the lender is confident of the repayment of the loan amount in full and on time, and hence the approval chances are incredibly high and almost guaranteed. In case of a home loan, you can expect up to 80% of the total cost of the property if your CIBIL score falls in the range of 700-900. However, such standards cannot be expected in case of a personal loan, as it is an unsecured loan, and hence the loan amount will depend on the specified purpose and indeed your CIBIL score. In case of a car loan, there is no specified CIBIL score that qualifies you; however, it is advised to have a score above 700 to stay assertive while applying for a car loan.
The primary benefit of maintaining a good CIBIL score is low-interest rates. Interest is charged based on the probability of default. A good credit score determines sound creditworthiness and regular and timely repayments of past loans. The likelihood of default is minimal, and hence the reward is reflected in comparably low-interest rates.
A good credit score reflects that you’re a worthy and responsible borrower. Hence the lender may not be hesitant to offer you a higher credit limit on your card or a comparably higher loan amount.
Must Read: How Much Personal Loan Can I Get?
There is gnawing unawareness about the actions and behaviour that affects your CIBIL score for a personal loan. However, after knowing the importance of the credit score, it is essential to understand the factors affecting the credit score.
Even a single payment made after the due date can adversely impact your credit score. Late payment signifies your inability to plan and handle your finances. It may be the case that you just let an EMI slip your memory or attention in the ensuing chaos and confusion of multiple EMIs with different renewal dates and different dates of repayment. However, such an unintentional lapse may shave some points off your CIBIL score. Hence, it is advisable to opt for a debt consolidation loan or a line of credit, avoiding the hassle of keeping track of multiple loans with multiple repayment dates. Thus, eliminating or reducing the risk of your credit score being lowered as a result of an EMI being precluded or overlooked.
Credit Limit refers to the maximum amount a borrower can spend using a credit card or revolving line of credit. Usually, lenders set a credit limit based on the repaying capacity of the borrower. The credit limit signifies the amount of money he can spend on repayment after meeting other payment obligations. If you spend more than 50% of your credit limit consistently, your credit score can be affected. It shows you’re not apt in handling and managing your finances. To maintain a considerable credit score, it is imperative to keep your expenses within 50% of your credit limit.
If you take the refuge of debt whenever any expense is rearing its ugly head, and end up pursuing multiple loans from multiple lenders, your CIBIL score will take a colossal hit. It signifies you are desperate for credit and falling short in managing your finances prudently. Also, when each of these lenders sends an inquiry request to credit rating agencies, which are known as hard inquiries, such inquiries get recorded, lowering your CIBIL score.
Hence, it’s indispensable before applying for any loan, to be aware and mindful of your CIBIL score. If your CIBIL score is low, be assured that you may not get a good deal. You’ll be charged exorbitant rates of interest or significantly lower loan amount than demanded.
In such a case, strive to improve your CIBIL score by paying all your outstanding loans and meeting your monthly payment obligations on time without any delay. In case of a good CIBIL score, use it as leverage, ask for rates of interests from different lenders who would be eager to offer you loans, compare the rates and the terms of the loan, negotiate if necessary, and then opt for the most appropriate loan.
900 is the best CIBIL score range for which you will have to ensure maximum financial discipline, on-time repayment of all EMIs, and a low credit utilization ratio. To achieve such a score, you must maintain multiple credit lines and consistently pay your dues on time.
You can raise your credit by repaying your EMIs punctually, maintaining your credit utilization ratio below 30%, expanding your credit limit, avoiding defaults and hard credit report inquiries, maintaining a variety of credit and personal loans, and recording all good loan borrowing and repayment practices on your credit report.
To raise your credit score in 30 days, pay all your bills and EMIs on time, maintain a credit utilization ratio below 30%, and consider getting a new credit card and following disciplined practices.
To increase your credit score in 60 days, avoid spending more than 30% of your credit limit, request a higher credit limit, and apply for further credit only when necessary.
The 5 easy ways to raise your credit score fast are:
Your credit score increases if you have proven your financial health and stability over a period of time. If you have been punctual with repaying all the money that you have borrowed, maintained a low credit utilization score, and avoided default of any kind on any loan, then your credit score will eventually increase.
Apart from paying on time, credit score also depends upon your history with debt, your current income-to-debt ratio, your credit utilization ratio, and your past history with loans. A decrease in income or an increase in credit utilization ratio could be the reasons for a drop in your credit score.
Outstanding debt can negatively impact your credit score. This means that you are using more than your credit limit allows. The more you owe to external bodies, irrespective of reason, the lower your credit score dips.
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