CIBIL Score is a three-digit number that exhibits one’s creditworthiness. It is one of the most critical metrics that lenders see apart from income while sanctioning loans. However, before understanding its importance, one should know about it and how it is calculated.
CIBIL Score is a three-digit number ranging between 300 and 900, which is published by TransUnion CIBIL. It collates and stores credit-related information from banks and NBFCs about individuals and corporate houses. Based on the available data and the credit history, it prepares a report and issues credit scores.
CIBIL issued ratings are the best way to measure the creditworthiness of borrowers. Lenders will provide low-interest rates and favourable terms to those who have scores above 750. On the other hand, stringent conditions will be offered who have their scores below 700.
This number helps the lenders determine the borrowers’ capability to repay the loans based on their past repayment patterns or defaults. These scores are the most reliable and accurate metric to gauge a person’s creditworthiness. Borrowers with a higher CIBIL score can receive attractive loan conditions compared to those with a lower score.
Interest rate is the most important parameter that borrowers look for while applying for a loan. Different financial institutions provide different interest rates to individuals while considering CIBIL scores. Higher scores will result in lower rates and minimum paperwork. Whereas lower scores will incur very high-interest rates, the application might also get rejected in some cases. So, a good CIBIL score has a direct bearing on rates.
The time to process one’s application directly depends on their CIBIL score. Therefore, higher scores will lead to quick processing of one’s files and speedy disbursal of the loan amount. Applicants with a lower score will face increased scrutiny from lenders.
Individuals having a higher score will be eligible for higher loan amounts. This is because lending agencies have greater trust in them and are ready to offer high quantum loans. Alternatively, borrowers with lower scores (below 700) will be seen as risky applicants, and banks would not provide higher loan amounts easily.
Longer loan repayment tenure offers huge relief to borrowers. They can plan their finances and EMI accordingly. However, longer loan tenures are a risky venture when seen from the point of view of financial institutions.
So, they will only provide long tenor loans when they have adequate satisfaction with a person’s previous repayment behaviour. This is where CIBIL scores will come in handy, and people with a good score will be able to avail of loans with longer tenures.
Here are some of the most effective ways through which one can maintain a healthy credit score:
Companies and individuals who pay off their credits on time can get a higher CIBIL score. So, the primary requirements for having a high score are timely repayment of credit.
Too much credit on one’s profile can badly affect the CIBIL score. Individuals should opt for more credit only once they have entirely repaid their earlier loans. Too many loans from different banks or lending agencies will negatively impact one’s credit score. Therefore, an individual should smartly plan their finances opt for loans when necessary.
A proper balance between secured and unsecured loans will allow an individual to maintain a healthy credit score. Conversely, the presence of too many loans of one category, such as unsecured loans, will lead to a decline in the credit score.
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CIBIL score is a useful parameter that allows financial institutions to gauge a person or a company’s ability to repay their debt. Those who maintain a good credit score will be able to take advantage of favourable loan conditions.