CIBIL Score, common terminology that seems more like horror for the common man. Yes, the reason is, it is always overhyped with credit card eligibility, loan, and other financial needs.
The term CIBIL Score is often called credit score, a three-digit number between 300 and 900. CIBIL Score is a specific number given to every customer by CIBIL Ltd, an Indian company that has the credit history of every user across the country. The information includes all financial transactions performed by the users/customers daily.
The CIBIL is a highly trusted organization in India; hence its score is considered as the credit score for various financial purposes.
The credit score is the rating you get based on your financial activities. Consider your CIBIL score as your performance on a cricket ground. If you score good runs on the field, you are a good player and hence will have more hatches in the future to play. On the contrary, with poor performance, you won't get into the team-11. Instead, you will lose the opportunity to play future games with top players.
On a similar note, CIBIL score is the rating that defines how potential you are to repay any loan or credit card bills. It is simply a correlated score that considers your borrowing and repayment practices.
Now, many of you would wonder why the CIBIL score is so vital in today's financial market? Nowadays, it is highly considered the base factor to judge the dependability of anyone looking for financial support from banking firms or non-banking financial organizations. Every lender checkers for your credit score before approving your loan request.
Your CIBIL score is considered a priority when applying for a collateral-free loan as you become a more risky asset for the bank/lender.
Presently, people with a handsome credit score always have multiple calls daily from top banks offering big personal loans at low-interest rates.
|
CIBIL Score |
Creditworthiness |
Approval Probability |
|
<600 |
Urgent Action Needed |
Low |
|
600-649 |
Murky and doubtful |
Difficult |
|
650-699 |
Satisfactory or fair |
Possible |
|
700-749 |
Good |
Good |
|
750-900 |
Excellent |
Very High |
Before we dig more into the CIBIL score, you should have basic knowledge about its history. So, let's move back to the past and acknowledge the history of the CIBIL Score.
Reserve Bank of India has licensed four companies (in India) to manage the credit information of all users. CIBIL is one among them that came into establishment in 2001. Since then, the CIBIL score is considered the most precise and the baseline by every banking or non-banking organization.
The other three companies legalized by the RBI include Equifax, Experian, and High Mark.
Many of you have tried to check your credit history but cannot read the CIBIL report properly. There are a total of four components of a CIBIL report that are listed below:
Credit Summary: Under the credit summary, you will find all the credit accounts that you own presently or in the past. It will give you the balance of all accounts, including credit cards, home loans, car loans, etc.
Account History: Second section in your CIBIL report includes the detailed information related to your credit accounts. This section provides you with information about lenders alongside the amount you borrowed from them, date of account opening, date of last payment, and the current outstanding balance. Primarily it includes the repayment history of the last three years.
Public Records: As the name suggests, Public records give you transparent information of all legal actions taken against you. This includes any criminal arrests, bankruptcies. You should always pay keen attention to this section and ensure this doesn't repeat in the future; if you want to sustain a healthy CIBIL score.
Credit Inquiries: Whenever you apply for a credit loan, your credit history is checked. Every time a third party accesses your CIBIL score, it is recorded and added to your CIBIL report. Your report mostly shows you third-party information which has accessed your credit score in the last two years.
Next time when you plan a loan or credit card, you should know what it takes to calculate your CIBIL score. Below are the factors that cumulatively affect your CIBIL score.
If you are one of those with a good credit score, it's crucial to maintain it forever. With a small mistake in your financial journey, your CIBIL score can move from GOOD to BAD. So, here are some tips that you should consider to maintain a handsome CIBIL score.
Stop Being a Co-signer: A co-signer is a person who applies for a loan with another individual. You should avoid being a co-signer until you need the money and you have the potential to repay it on time.
Don't Take Too Many Debts: Money is required for everything, but this doesn't mean you apply for a loan and fulfill your dreams. Taking too much loan results in mental stress and mismanagement of your ongoing monthly expenses. This further makes you disable to repay the debts on time.
Repay Your Bills/Dues on Time: Whether it's your loan EMI or a credit card bill, make sure every payment is made on time. Delaying the repayment results in a high penalty on your EMI/Bill. Further, late payment has a direct impact on your CIBIL score.
Take Loan with Proper Repayment Plan: This is the biggest advice that everyone should take in life. Whenever you plan to take a loan, it's important to plan its repayment. This way, you can stay assured of easy repayment without facing another financial crisis and stress.
Negotiate for Low-Interest Rate: Often, you are given a loan on current ongoing interest rates. However, if you have a good credit score, you should negotiate for a lower interest rate to lower your repayment tenure and total interest.
Prefer Small Repayment Tenure: The longer you pay for a loan, the higher will be its interest amount. Hence, you should always prefer a small repayment tenure that will complete the loan in a short period alongside lowering the interest amount.
Always Consult with Your Financial Advisor: Whenever you have a financial plan, it's essential to share it with your financial advisor. You should always ask your advisor about the benefits of taking a loan and the right tenure, amount, and interest rate to lessen your repayment burden and fulfill your monetary needs.
Most of you ask the most important question is how CIBIL Ltd calculates your CIBIL score, aka credit score? Multiple factors are included to evaluate your final credit score.
Your Repayment History: Your credit repayment history contributes to 35% of your CIBIL score. It consists of how regularly you repay all your dues and monthly EMIs.
Your Credit Balance: This contributes to the 30% of your CIBIL score, including the amount of credit available and how much you have used in the past. You should note that you will be considered a risky borrower if you have taken most of your sanctioned credit. Hence, you should prefer taking less than what you are eligible for.
Your Credit Tenure: Whenever you take a credit, its tenure is also considered to evaluate your CIBIL score. It contributes to 15% of your score. E.g., If you have had a home loan for 20 years and you are repaying it in a managed manner, you have a good credit score.
Your New Credit: Most of you already know that every time third parties check your credit score, it's a sign you are planning a credit loan, and hence your credit score is impacted. Your new credit contributes to 15% of the total score.
Your Credit Mix: If you only have a home loan, this doesn't mean you have an excellent CIBIL score. Instead, your credit mix has a strong impact on your score. It contributes to 10% of your score. Hence, you are always suggested to maintain a proper blend of various credits.
So, you are well educated about your CIBIL score and what is a good CIBIL score which you should keep in mind before applying for any credit. Now, you might think that there is no opportunity for people with bad credit histories.
Also Read- What is the Minimum CIBIL Score for A Personal Loan?
Interestingly, numerous banks and non-banking firms are ready to lend money to people with bad credit histories. However, such loans are always accompanied with high-interest rates. Moreover, banks even ask you for collateral if you have a bad credit history and still apply for financial support.
With that said, you are fully educated about a good CIBIL score and why it is a crucial part of your financial journey. Always follow the right practices to maintain a good credit score.