Published on Apr 24, 2020Updated on Nov 8, 2023
CIBIL is one of the four credit bureaus in India that generates reports based on your credit score. Your CIBIL score reflects your credit history. It is used by lending institutions to evaluate your creditworthiness before approving loans and other credit-based financial products. Most lenders have started classifying customers based on their credit score and are offering risk-based pricing on certain loans. The lower the risk, the lower the rate of interest and vice versa.
CIBIL scores are calculated taking into consideration several factors that include your payment history, length of payment history, applications for credit, the debt amount, credit mix, etc. Different weightage is awarded to each of these factors. Ensuring a good score is an ongoing activity.
Your credit score is important because it is a numerical representation of your creditworthiness, which is the likelihood that you will pay back your debts on time. It is a tool that lenders, such as banks, credit card companies, and other financial
institutions, use to assess the level of risk they would be taking by lending you money or extending credit. A good credit score is one that ranges from 750 to 900.
CIBIL scores range from 300 to a maximum of 900. A score between 300 to 549 is considered poor whereas 550 to 700 is considered as an average score. Being at the top of your credit score can help you obtain loans easily, but the opposite is also true.
|CIBIL Score Range||Rating|
300 - 500
550 - 650
650 - 750
750 - 900
Use the CIBIL score checker today to know what your credit score is.
The minimum CIBIL score for a personal loan is 700 and above. Anything below 700 could be a cause for concern. However, all is not lost. While your credit score cannot change overnight, major and minor modifications in your financial habits can help in making a significant difference.
A low CIBIL score can affect your ability to obtain credit, including loans and credit cards. There are several factors that can lead to a low CIBIL score, including:
Paying outstanding credit bills can help in improving your credit score. Getting into the cycle of paying only the basic amount due as it appears on the credit card statement might help in escaping late payment charges. This minimum amount due is approximately 5% of the billing amount in that cycle. However, this leads to interest and taxes being added to the bill in the next cycle and leads to a mountain of debt.
Paying dues on time not only prevents interest from mounting, but it also helps in improving your credit score in the long run.
Using less than 30% of your credit card limit can help in preventing damage to your credit score. On the other hand, not using your credit card at all can adversely affect your credit score. It is advisable to pay off your credit card dues well in advance. Using more than 30% on your credit card is considered to be high credit utilization, it is advisable to opt for a higher credit limit which can help in increasing your credit score fast. Also, it is advisable to limit your applications for loans. Applying for multiple loans can also adversely affect your score.
Be prudent while applying for credit cards. While credit cards are helpful while applying for loans, having an excessive number of credit cards and making high value purchases might prove to be counterproductive. While applying for a credit card, it is a good idea to check your credit eligibility and apply to banks where the chances of your loan application getting approved are higher. This is because not only spending excessive amounts on your credit card but applying for credit cards from several banks can adversely affect your credit score.
Ensure that you maintain a reasonable gap between making applications to prevent lenders from believing that you are chasing credit. Applying for credit cards when you can repay it helps in adding points and helps in increasing your credit score.
A study by the Federal Trade Commission in 2012 found that approximately 20 percent of customers had an error in their credit report. A repeat study conducted in 2015 found out that customers who reported an unsolved error still believed that there was an error in the report. Keep a check on your credit report from time to time for inconsistencies and errors. Credit bureaus are legally bound to offer borrowers one free credit report a year.
Online marketplaces have also simplified the process of monitoring credit history. The report could contain errors like incorrect information, delay in updating the report or a delay in updating important details in your report. These errors can adversely affect your credit score. Errors, if any, can be reported and rectified instantly.
Therefore, how to check your CIBIL score?
You can visit the official website to check your score. You can also fill a Dispute Resolution form on the website to resolve issues.
Must Read: How to Check CIBIL Score For Personal Loan?
Credit, if obtained wisely, is helpful since a person who has never obtained any form of credit will generally have a lower CIBIL score which can make it difficult for them to obtain loans. Hence, it is advisable to include different types of credit in your portfolio that include a mix of personal and secured loans, long as well as short term loans to improve your credit history.
This step can help in improving your chances of availing a higher loan and a lower rate of interest when you decide to apply for a loan. Know what is a CIBIL score today.
By increasing your credit limit, it will instantly lower your credit utilization ratio and boost your credit score.
Over utilizing the credit limit available to you beyond a certain limit will result in the credit scoring models categorizing you as a high-risk borrower. As you are utilizing the full credit limit (or beyond a certain limit), your credit utilization ratio increases significantly, thus increasing the risks of default. Although the risks distantly apply on you, your credit score gets negatively impacted.
Hence, it is wiser to increase your credit limit before any additional spending. By doing this, you get the opportunity to manage your credit wisely and can keep your credit utilization low, thus increasing/maintaining your credit score.
Your credit score is a reflection of your past credit behavior and based on that, the lender approves the loan application.
Therefore, keeping the records of your old good loan account in your credit report is a good practice for your credit score. After all, a debt that is repaid following the agreed terms within the stipulated time frame increases your creditworthiness and has a positive impact on your future loan application.
Also, one of the other ways to improve your credit score is to keep your good accounts active where you’ve got a solid repayment history for as long as possible. This is the most common tactic used by business enterprises. They keep their credit account active for as long as possible, to boost their credit score.
The credit scoring models are designed to pick up the early signs of stress and risks in the borrower’s profile.
For example, missing on credit card payments, suddenly paying less than the total due amount or revolving credit is the first sign of stress in the borrower’s credit profile. Other changes such as, taking cash advances or using cards at meeting business expenses are signs of stretched cash flow.
Opening a new credit line increases your credit limit, but every application for a new credit line creates a hard inquiry on your credit report. Hard inquiry is a detailed analysis of your credit profile to assess how much risk you possess as a borrower.
As hard inquiry is reflected on your credit report for two years, multiple hard inquiries in a short span of time can negatively impact your credit score. Hard inquiry resulting in rejection of loan application is an extremely negative event.
A credit score doesn’t improve overnight and it requires consistent effort to repair the credit report and improve it.
Therefore, you need to be patient and continue to monitor your credit report, your different credit lines, spending pattern and ensure timely payment of a debt. Over time, it will help to boost your credit score and improve your creditworthiness.
Increasing your CIBIL score is an uphill task but can be achieved with the help of planning and discipline.
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Easily check your monthly instalments by filling in your requirement details on the personal loan EMI calculator on the SMFG India Credit website. Know more about the CIBIL score for personal loan today.
It is difficult to improve your credit score in 30 days but you can try requesting a high credit limit while cutting down on credit borrowing. This will maintain your credit utilization ratio to less than 30%. Also, you can ensure that you do not miss any EMI or bill payment in the upcoming 30 days.
Boosting your CIBIL score will take time. A good CIBIL score is a result of long-term patience, financial discipline, and adherence to payment dates. If you are just starting out, you can expect the CIBIL score to boost in 4 to 12 months of time.
You can buy your CIBIL score and report directly from the official website of CIBIL. Whenever you want to generate your CIBIL report, you need to make a short payment and download the report from the website. The report is typically available for download within 24 hours, but it may take up to 3 days to generate depending on the verification process.
For a CIBIL or Credit score, the higher up the graph, the better. If you wish to take up a personal loan from an NBFC like SMFG India Credit, your CIBIL score must be at least 750 or more.
The highest credit score under CIBIL is counted to be 900. It can be achieved by maintaining a strong record of borrowing and timely repayment.
The lowest highest credit score is 750. This is the minimum CIBIL score one needs before applying for a personal, business, or home loan. Although such a credit score does not guarantee approval, it can simplify and expedite the loan process.
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. Hence, despite paying on time, you might have crossed 30% of your credit utilization ratio or shown a drop in income.
If you have the funds, you can make more than 1 payment. Doing so will reduce the amount of due left. This means that your balances will decrease at a faster rate than before and your credit utilization score will increase. Hence, it can boost your credit score.
The best time to pay your credit card bill is either before or on the deadline. Crossing this time can negatively affect your CIBIL score and paying in advance can be in cases when you have to make a large purchase.
Yes, it is a great idea to pay with your credit card in full. This is because your credit card can cost you a monthly fee and hamper your credit utilization ratio. This can bring down your CIBIL score.
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