Why Is CIBIL Score Important - A Detailed Summary

24 February 2023
3 min read
Why Is CIBIL Score Important - A Detailed Summary
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In addition to other financial tools like credit cards, many banks, NBFCs, and other financial organizations also provide loans to individuals. However, these loans are only approved when the applicant has a decent credit score.

To obtain your CIBIL Score, go to the TransUnion CIBIL official website. You have a better chance of getting loans quickly and at cheaper interest rates if you have a high CIBIL Score.

In this blog, we shall discover the meaning and significance of the CIBIL Score and other essential details. 

Credit Bureau Information (India) Limited, also known as CIBIL, is one of the four significant credit score information businesses to which the Reserve Bank of India has granted a license. 

CIBIL Score is a three-digit number ranging between 300 and 900, which TransUnion CIBIL publishes. It collates and stores credit-related information from banks and NBFCs about individuals and corporate houses. Then, based on the available data and the credit history, it prepares a report and issues credit scores.

Factors That Make Up Your CIBIL Score

Your CIBIL score is mainly based on four factors-

Payment History  

30%

Credit Exposure   

25%

Credit Type and Duration  

25%

Additional Factors

20%

Importance of CIBIL Score

Your credit health is captured in your Score, as it gives lenders a picture of your capacity to repay the borrowed sum.

Here are other justifications for the significance of a healthy CIBIL Score-

  • Creditworthiness

Based on previous repayment patterns or defaults, this figure assists lenders in determining the borrowers' capacity to repay the loans. These are the most dependable and accurate metrics for determining a person's creditworthiness.

Borrowers with a higher CIBIL score can get better loan terms than those with a lower score.

You may also want to know Everything You Need to Know About the CIBIL Score.

  • Lower Interest Rates

The most significant factor borrowers consider when applying for a loan is the interest rate. Different financial organizations provide varying interest rates to individuals based on their CIBIL scores. Higher scores imply cheaper rates and less paperwork.

Conversely, lower scores will result in high high-interest rates, but the application may be refused in rare situations. As a result, a high CIBIL score directly impacts rates.

  • Speedy Application Approval

The time it takes to complete an application is closely related to the applicant's CIBIL score. As a result, higher scores will result in faster processing of one's files and speedier disbursement of the loan money.

Lenders will scrutinize applicants with lower scores more closely.

  • Increased Loan Limits

Individuals with more substantial credit scores will be eligible for more significant loans. This is because financial institutions have more faith in them and are willing to provide large loans to them.

Conversely, borrowers with lower credit scores (below 700) will be viewed as riskier candidates, and banks will be reluctant to grant more significant loan amounts.

  • Longer Loan Tenures

Borrowers benefit greatly from longer loan payback terms. This is because they may budget and schedule their EMI properly.

Longer loan terms, on the other hand, are riskier enterprises from the perspective of financial institutions. As a result, they will only provide long-term loans if they are satisfied with a person's prior repayment behavior. This is where CIBIL ratings are helpful, as those with a high score can obtain loans with longer repayment terms.

  • Improved Negotiating Position

A strong credit score also guarantees cheaper interest rates and simple loan access. There is always room for negotiation with the banks to lower the interest rate for people with high credit scores.

  • Outstanding Credit Card Offers

Most lenders will make attractive credit card offers to those with good credit reports and CIBIL scores. Then, higher restrictions, more benefits, and various incentives, such as cash backs, follow.

  • Simple Approval for Rented or Leased Properties

Good credit scores make it simple for borrowers to get approved for loans, even for rented or leased assets like houses, office buildings, or flats.

Conclusion

To sum up, the CIBIL Score is a helpful metric that financial institutions may use to assess a person's or a business's capacity to repay their loan. Those who keep their credit score high will benefit from attractive benefits.

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