In today’s credit-driven economy, a good credit score has become essential to one’s financial success as a good CIBIL score throws light on the creditworthiness of a borrower and on other hand helps the financial institution to check cibil score of individual and make an informed decision before granting any loan.
CIBIL score is a representation of the creditworthiness of a prospective borrower. All banks and NBFC’s usually look at the credit score before granting any loan to an individual as it gives an indication to them about the likelihood of individual paying back a loan. A credit score is considered to be healthy only when it ranges from 750 to 900. If the individual has a score of 750 and above, banks and other NBFC’s consider an individual to be credit healthy as a high score is indicative of good credit health. On the other hand, if an individual has a score of less than 750, banks feel it is very risky to grant a quick approval of a loan or issue a credit card and provide other benefits. In India, CREDIT bureaus have various ranges for their credit scores and generate credit reports for the individual. So one must know how to check my cibil score.
ADVANTAGES OF A GOOD CIBIL SCORE:
A credit score helps to monitor individual repayment track record, whether he is likely to default on a payment or make timely payments. With a good credit score, banks provide numerous benefits to the individual as well as to the entities which are as follows:
Quick approval of loans: A good CIBIL score paves the way for quicker loan approvals from lenders as it creates a positive impression about the creditworthiness of an individual.
Low-interest rate credits: People usually with high CIBIL score get loans at relatively low-interest rates and even sometimes lender also offer interest on discount rates.
Less credit risk: A healthy CIBIL score means low credit risk and therefore the individuals are less likely to default payments. Banks and NBFC’s also offer preferential pricing to consumers who have a high CIBIL score.
Bargaining for longer tenure loans: A good CIBIL score can enable the borrower to bargain for a loan with a higher than normal tenure.
Credit card benefits: With good CIBIL score, lenders can also issue credit cards with higher credit limits and benefits and rewards like lounge access.
Factors affecting CIBIL score increase:
There are many factors which affect a good CIBIL score such as:
Credit Repayment: Repayment of credit plays a major role in developing a good CIBIL score. Making late payments on credit cards or delaying or defaulting on EMIs regularly can negatively affect the credit scores which might indicate that the individual is not capable of clearing his existing debts.
Unsecured loans: An excess percentage of unsecured loans may also affect the credit score as it indicates mismanagement of personal finance so there must be a balanced combination of both secured and unsecured loans which adds positively to the credit score.
Multiple loans and Credit Cards: If individual access to have multiple loans and credit cards with more than one financial institution then it portrays a negative impression on lender about his creditworthiness.
Not revising credit report: It is considered to be essential to check the credit report after every six months so that there is no rectification. If there is any delayed or default reporting by banks reflecting wrong information on the credit report might reduce the CIBIL score of an individual and also might create confusion in the minds of the lender.
Act as guarantor for loan: If the individual is acting as guarantor for a person’s loan and also with this making defaults or delay in payments then it leads to falling in CIBIL score.
How to improve the CIBIL score:
There are many ways to improve CIBIL score which are:
Pay down the outstanding balances: The foremost step to improve the CIBIL score is that individual must pay off the outstanding balances on any loan or credit card because this will help to improve the creditworthiness of an individual and also loan eligibility.
Make regular payments: It is a very important factor to make regular payments on time and making full payments. This factor has a significant impact on CIBIL score. Irrespective of how big or small the payment is on loans or credit cards never default it. Then only it will show a positive impression on the lender.
A balance between the credit: There must be a balanced combination of both secured and unsecured loans which will reflect favorably on the credit score.
Credit utilization ratio: The individual must maintain a credit card utilization ratio between 30-40% as it makes a positive impact to apply easily for loans or credit cards in the future.
Check on credit report: The individual should keep a check on his credit report after every six months to rectify the errors to avoid further confusion as there are some errors that are unnecessarily dragging down the CIBIL score.
This way CIBIL plays an essential role in India’s financial system. Individual credit score will not only help lenders to access loan eligibility but also helps them to understand how creditworthy an individual is. So maintaining a healthy CIBIL score is extremely important.