CIBIL is
one of the biggest credit rating agencies of India and also partner with some
of the largest banks and NBFCs that use its services. In fact, if you are going
to apply for a personal loan or a credit card soon, then chances are that your
bank will check your CIBIL report before making any decision. Most importantly-
they will check your CIBIL score. But what’s that exactly?
What is a CIBIL Score?
CIBIL score,
which is also commonly referred to as a credit score, is the numerical
representation of your creditworthiness and has a proportional relationship
with the same. In other words- the higher is your score, the greater is your
creditworthiness.
If you want
to get a loan or any other kind of financial benefits from banks and other
non-banking financial companies, then you must improve
CIBIL score. However, first things first.
How is a CIBIL score Calculated?
Your score
is calculated on the basis of several factors, which are:
1. Payment
History
Payment
history is a broad subject but it mainly covers your loan payment history and
credit card bills payment history.
If your
track record shows that you pay your bills and EMIs on time then you score will
increase and if not, then it will be cut. However, the timing of the late
payments can cause a greater impact. For instance, if several of the late
payments belong to a recent past, then your score can be heavily damaged.
2. History
of Defaults, Loan Settlements, etc.
If you want
your score to stay intact then you want to stay away from loan settlements or
defaulting. These are serious misdemeanors in the eyes of the lenders who want
their loan borrowers to have a clean slate, a history of responsible credit
behavior. However, loan defaults and written-off debts are the exact opposite
of that. Needless to say, someone with a history of such incidents will be only
provided a poor score.
3. Debt to
Income Ratio
If your
debt to income ratio is higher than 30% to 35% then it indicated a higher
financial pressure and can result in a low score. Similarly, if you have a high
loan balance, then it can affect your score negatively.
4. Credit
Variety
CIBIL
rewards individuals who have a healthy credit mix with a high score. In other
words- if your credit report shows the history of only a personal loan
repayment then your CIBIL score will increase only
so much. However, if there is an account of a credit card, a car loan, etc.
then your will increase a lot because of the variety of credits.
5. Loan
Enquiries
A loan
inquiry is when you apply for a loan with a bank and they request for your
credit report from CIBIL. This instance is mentioned in the report and works
against your score. In fact, if you apply for a loan with multiple banks, thus
causing multiple loan inquiries in a short period, then it can greatly reduce your
score.
Now that
you understand how score calculation works and how you can increase CIBIL score, let’s take a look at the meaning your current
score:
·
350-
550: A score in this range is considered a poor score.
It’s usually because of loan defaulting or consistent late payments of EMIs,
etc.
·
550-650:
This is an acceptable score range but definitely not the
best. It usually signifies that the individual is a fairly responsible credit
user but can do better.
·
650-750:
This is a range which you should strive to achieve. If your score is within
this range, then you can get any kind of personal loan, home loan, etc. at
attractive interest rate easily.
·
750-900:
Very few people are able to reach this range as 900 is the maximum score that
you can achieve. However, if you are able to accomplish such a high score then
you can also enjoy several benefits that others won’t easily get.
·
0
or -1: If your score reads 0 or -1, it means there is no
credit history available yet which is why there is no appropriate score.
Having a
high credit score can be really helpful in the financial arena. So, be sure to
check your report from time to time and take the necessary steps if you notice
your score reducing.
Nice go through this recent post on cibil score click on - know how your cibil score get calculated
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