CIBIL score, which is commonly known as credit score is especially important to take any kind of loan. Whether it is personal loan, education loan, or home loan. Banks and other financial institutions must check your score before providing you with any loan.
So, what is CIBIL score? And how is it calculated? And most importantly, how can you check and improve your CIBIL score if your score is not so good. And in the end, we will discuss how a good score can transform your life forever in the future.
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What is Credit Score?
If you have ongoing loan or if you want to take a loan, then you must know everything about CIBIL score. This is a score that determines the probability if an applicant to get a loan which means that if your score is incredibly good, then you will get a loan very easily with a lower interest rate.
But if your CIBIL score is not good, then you might not get a loan and if you get a loan by chance, then you will have to pay an extremely high interest rate.
First, what is CIBIL, the full form of CIBIL is Credit Information Bureau India Limited. This is not a government institution, but it is a third-party private organization.
CIBIL maintains a proper record of all those who have ever taken a loan from any financial institution in this country. CIBIL share this information with banks and financial institutions whenever they need it.
Now, why would a bank need this information?
Bank is giving you a loan, or you want to take a loan from the bank, then it is important for the bank to know your credit history and your payment pattern. Because banks just do not rely on salary slips, income tax return, or other documents.
That is why they (banks) rely on such organizations as CIBIL to know more about their customers.
So, whenever you apply for a loan, whether it is an education loan, personal loan, business loan, home loan, car loan, or credit card, which is also a kind of loan, banks ask CIR (credit information report) from CIBIL.
Credit information report is nothing but your personalized credit history. CIBIL gives you a score based on your payment history. The given score takes place between 300-900. Where 300 means the score is extremely bad which indicates that your probability of not paying the loan on time is extremely high. And most likely banks will not give you any loans.
And 900 is excellent, which means that your probability of not paying a loan is exceptionally low and banks will not hesitate to give you a loan.
A good CIBIL score is anything upwards of 750. If your score is between 750-900, you have a good CIBIL score, and you are most likely to get a loan easily.
How is it Calculated?
There are five factors that impact your CIBIL score the most:
- Payment history. First, the most crucial factor that affects your score is your payment history. Which means with how consistently you have repaid your loans in the past. It could be your EMIs or credit card bills. This is a sense that how diligent you were with the repayment of your loans in the past.
- Mix of loans. If your loans have not mix of secured and unsecured loans, then it might affect your score. If you have too many unsecured loans such as personal loan or credit cards, then it will affect your CIBIL score negatively. Just in case you do not know; gold loan, home loan, car loan, etc. are examples of secured loan.
- Credit limit. If you are utilizing more than 30% of your credit limit very frequently, this will affect your score negatively. For example, if you have a credit card with a credit limit of one lack. And if you are using 70,000-80,000 thousand rupees every month, then it will hurt your score for sure. So, please do not use more than 30% of your limit.
- Multiple loans. If you have taken too many loans in a short span of time or applied for too many credits cards, then your score reduces gradually. Please avoid this. More than 1-2 credit enquiries in a month are more than enough if you really care about your score.
- Inconsistent address. Inconsistent address has minimal impact on your score. Still, you should keep the same address every time you apply for a credit card or loan.
Experts say, if you are a guarantor of a defaulter who has not paid his/her loan or EMIs on time, then your score will also reduce along with the defaulter. So, next time be sure to become a guarantor while taking loans or credit cards for someone.
How to Check CIBIL Score?
First, there is a myth that I want to burst that checking your CIBIL score will reduce your score. This is incorrect. So, if you are interested in checking your score, then you can head to CIBIL’s official website and check it for free. There is no fee for checking your score online. For your convenience, a direct link to the official website has been already shared above.
To check your credit score, find “To get your Free Annual CIBIL Score & Report.”
There are apps which you can use to check your score such as OneScore, Paytm, Google Pay, etc. They all provide this service at no cost.
Now, what if your score is not good? What if your score is below 750? Can you do something to improve it? Yes! You can improve your score if you wish to follow the following steps.
How to Improve CIBIL Score?
There are a few steps you can take to improve your score:
1. Pay all your dues. If you have any pending amount due, pay it now in full. Do not get in a trap of paying the minimum due amount. Always pay your credit card bills or EMIs in full.
2. Avoid taking too many credit cards and loans. You have been told this already that you should not take too many credit cards and unsecured loans as it impacts your score significantly.
3. Use credit cards frequently. If you use credit cards or pay later, use it frequently and pay the bills on time and in full. This will build your credit history and improve your score. There is one thing to keep in mind that do not use more than 30% of your credit limit in a month.
As we have discussed earlier, that how CIBIL calculate your score. You can head to those point to learn how can you avoid the mistakes that affect your score negatively.
Now, let understand how a good credit score can transform your life in the future.
I personally believe that a good credit rating or score can open many doors in the future because if you have a high credit worthiness, then it means you are a responsible person.
Because of that (good score), you get privileges, you get better offers and a better rate of returns. Also, you get new investment opportunities. If you follow the rules and are financially responsible, then you will get what others cannot for sure.
Transforming the future sentence may seem like exaggeration. But an excellent credit score is an immensely powerful weapon that you can use to create new opportunities in your life which can transform the future of yours and your loved ones.