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.