Disadvantages Of A Bad CIBIL Score

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April 30, 2018
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Disadvantages Of A Bad CIBIL Score

It is highly likely that most people looking for a loan or for a credit card have come across the term ‘CIBIL score’. A CIBIL score is simply a cumulated expression of your credit worthiness and is now widely used by banks and financial institutions to gauge & decide on loan approvals. The score could range between 300 to 900 where anything above 750 is considered good. But what if your score is below this number? There are but a few disadvantages of a Bad CIBIL score and we would like to emphasize on the main ones.

Loan Rejection

Your CIBIL score is used by bankers at times to immediately accept or reject your loan application. As a CIBIL score is calculated basis a number of factors including but not limited to your credit history, repayment history and current debt; it is common industry practice to imply that a bad score means a Bad CIBIL history. In instances of banks being flooded with applications for loans, a CIBIL scores becomes the deciding point between an application being out-rightly rejected or being sent for further processing.

High Interest Rates

Sometimes, your CIBIL score might not be distinctly low but may border towards a level which is acceptable. However, in order to safeguard themselves and ensure that the loan transaction is favorable to their bottom-line, banks may end up charging you higher rates of interests. This means the same loan would cost you a lot more in terms of repayment in case of a Bad CIBIL score.

Low Loan to Value

When applying for high value loans such as one for your dream home or car, banks determine the amount to be lent out, basis your CIBIL score. This amount is decided as a percentage of the asset being acquired. Also known as loan to value (LTV), it is the ratio of the loan amount to the value of the asset being purchased. For example, if your prospective home is worth INR 1 Crore, depending on your CIBIL score, a bank may decide to fund either INR 50 Lakhs (LTV is 50%) or INR 90 Lakhs (LTV is 90%). A Bad CIBIL history means your LTV would be lower, implying that you will need to shell out more from your pockets.

Job Rejections

Lately, many financial& IT companies are using prospective employees’ CIBIL scores to screen job applications. While at the outset, it may seem strange; there are grounded reasons for this. Mostly, HR departments request a candidate’s credit history as a part of regular background check. Further, a CIBIL score is also used to judge the candidate’s personality. A Bad CIBIL history is taken as an indication that integrity is probably not the candidate’s stronghold; that he isn’t good with responsibilities or simply that the candidates work performance might be affected due to debt pressures.

Knowing the disadvantages of a Bad CIBIL score, the next steps for you would be to get your CIBIL report so that you correctly understand your credit status. We invite you to explore more at credithelpindia.com & kick-start your journey to achieve your financial dreams.