Tuesday, 22 December 2015

Can I Interpret My CIBIL Score?

Most of us are likely to be aware of the importance of the CIBIL score and how it can impact our chances of getting a loan and in the future maybe our jobs and relationships too. Though we understand that it is a tool that is used to assess our loan applications, do we know how to interpret it? What to these three numbers mean?
Just like it is important to understand our bank and credit card statements it is not only useful but also imperative that you know how to interpret your CIBIL report. The CIBIL score is a three digit number that sums up your financial health; this number has a significance that goes beyond just loan application approval.
What Does the CIBIL Score Mean?
The CIBIL score is a three digit number between 300 and 900; this score is arrived at considering various parameters. Though there is no absolute good and bad score as each lending institute may have its own rules regarding what score is acceptable to them; some lenders may be more flexible than the others and may be willing to lend based on considering other factors too. Acceptable CIBIL score is also dependent on the type of loan one seeks. Below is a table that lists generally accepted patterns; they are not hard and fast rules but more of a norm.
The table below gives a ready reckoner that can help you interpret your score from the point of view of getting a loan application accepted. As stated earlier these are just generally accepted norms and each lender may choose to follow these norms as per their choice and may vary them as per their discretion or as the situation demands.
Score Range
What it Means
Excellent score with a perfect payment track record. All lenders will be willing to accept your application for both secured and unsecured loans.
A decent score reflecting a fairly acceptable payment track record.  Banks will be willing to sanction secured loans but might want to be extra cautious when extending unsecured loans. Loan will be sanctioned at competitive market rates.
Reflects irregularity in past credit behavior, most banks may be unwilling to lend. Some lenders may consider lending with extra credit check, high collateral and at high interest rates.
Reflects extremely irresponsible credit behavior, there might have been loans that have been written off in the past or dues that have been settled in the past. Almost impossible to get a loan in the  organized lending market.

Interpreting the Credit Score Beyond Loans:
The most obvious use of CIBIL score is for getting a loan applications approved and in some cases now, scrutinizing a probable candidate before hiring for a job. However beyond that your credit score could be an indicator of your financial health.
Whether one requires a loan, checking the credit score once a while is advisable. A look at the score allows you to assess your financial situation and see if course correction or any changes are required in your financial planning for the future.
For example; a credit report lists all the open loans, thus you can plan accordingly about any future loans that you plan to take or in case you want to prepay a loan. A high credit utilization ratio could indicate that you need to plan your monthly spending better or get a higher credit limit sanctioned. A high debt to income ratio is a clear signal that your finances are already stretched and you should try to get your act together to avoid a debt trap.

Apart from the lenders point the CIBIL score offers valuable insight to you also about your financial health and you can interpret for better financial planning.

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