A CIBIL Score is a three-digit number that represents your financial record. It is essentially a numeric summary of your credit history that ranges from 300 to 900.
On a scale of 300-900, a score of 900 is deemed excellent, while a score of 750 or higher is considered decent. However, a score of around 300 is terrible and is considered an unqualified score, with a slim chance of receiving credits. As a result, it is essential to monitor your CIBIL score on a regular basis.
Read along to find out how a CIBIL credit score is computed and how the same influences your credit record.
CIBIL vs Credit Score – At A Glance
The CIBIL score is generated by the recognized credit bureau TransUnion CIBIL and the Credit Information Bureau of India Limited is abbreviated as CIBIL. While several credit bureaus in India offer credit ratings, many individuals choose CIBIL as it is most recognized and used by most institutions. Notably, Equifax, CRIF Highmark, and Experian are the other known credit bureaus in India that generate credit ratings. Alternatively, a credit score is similar to one’s financial report card and appears as a numeric summary of an individual’s overall credit health.
How is CIBIL Score Computed?
Banks and financial organisations are mandated to report credit activity to credit bureaus on a monthly basis. Typically, the conveyed information includes any loans or credit card repayments you made or missed during the period. The report also includes new loan applications, credit card credit limits, interest rates, and loan account status – both active or closed. The credit bureaus compute an entity’s CIBIL credit score after a thorough statistical review of the financial data and habits.
Reasons for Zero or Negative CIBIL Scores
Zero or single-digit CIBIL ratings may signal that either you are a new borrower with no credit history, or are incompetent.
A credit rating of 0 implies that the applicant has no history of borrowing or that lenders were unable to locate their data. However, a CIBIL score of -1 indicates a person’s credit history is irrelevant. It may also identify an incorrect credit history, or a record-extending less than six months with inadequate data to calculate a score.
What is the Importance of Having a High CIBIL Score?
Having a healthy CIBIL credit score can prove useful in more than one way. Some of the benefits of having a high credit score include:
- It offers you access to credit without much hassle
- You are likely to get a high loan amount sanctioned at a lower interest rates
- You are able to bag the best deals on credit cards and loan options
- Most banks and financial institutions deem you creditworthy
Collectively these help access financial assistance as and when required and all help avail the best terms of repayment.
Top 5 Ways to Boost Your CIBIL Score
The ways to boost your CIBIL score are as follows:
- Timely payments: Avoid delaying your EMI payments unnecessarily. If you can afford to repay your loan EMI or credit card bills easily then make sure to pay them on time. Repaying your debts on time displays your credit management skill and repayment capabilities.
- Proper debt management: A greater debt burden tends to hamper one’s credit score. Hence, it is recommended to keep your credit utilisation ratio (credit utilized from the approved credit limit) less than 30% at all times to retain a high credit score and prevent from accumulating a huge debt.
- Avoid multiple loan applications: Every time you apply for a loan option or a new credit card, your CIBIL report will record a hard query on the acceptance or denial of your application. Each inquiry is known to lower one’s credit score by a few points only to bounce back later. While one hard query will not harm your CIBIL record, applying for multiple loans or credit cards within a short span may lower your CIBIL score significantly. This also represents the applicant as a credit hunger borrower to the lenders.
- Check CIBIL report: You must make it a point to review your CIBIL report on a regular basis. This will help you discover any erroneous or fraudulent data in your report which affects your creditworthiness and score immediately. Subsequently, you should inform authorities about the same to protect your credit score.
- Build a healthy credit history: If an individual has no credit history but intends to take out a loan, they can build a record by applying for a basic credit card or a personal loan. If an individual has a fixed deposit account they may consider taking out a loan against it. They should use an FD calculator to ascertain the maturity value and develop an approach to top the same subsequently by making an additional deposit. Subsequently, they must clear the bills and EMI payments on time without fail. This will help improve the CIBIL score. Individuals should start with entry-level financial products, which they can manage effectively and without straining their monthly budget.
Can a Person Apply for a Credit with a Low CIBIL Score?
In case of a low CIBIL credit score, you can apply for secured loans such as a gold loan or a loan against property by simply mortgaging your assets. Additionally, there are a few non-banking financial organisations and banks that may offer you loan options or credit cards even if you have a CIBIL score of zero, -1, or 600. However, such financial institutions may charge you high-interest rates and implement stringent repayment terms.
Here’s how you can apply for a loan or credit card with a low credit score:
- You can apply for a loan with a co-applicant or guarantor. While you can ask someone to be your co-applicant or guarantor, their CIBIL score must be strong to back your application. When your desired lender finds that your guarantor or your co-applicant possesses a strong CIBIL score, they will consider your loan application.
- You must ensure that your credit report is up to date and take necessary steps to increase the same steadily to gain the lender’s trust.
- Apply for a loan with a high-interest rate, if you are in need of availing urgent financial assistance.
Besides these, you can also apply for a low loan amount. So that even if you are deemed risky, you stand a chance of getting your loan approved. That said, keep these things in mind to maintain a healthy credit score.
