The CIBIL (credit) score is not something new for the salaried people. This Score usually helps in getting a credit card and loan approvals. It has high importance and many advantages. However, many people tend to experience a low or poor credit score at some point in time. This may happen due to many possible reasons. Improving the credit score as soon as it becomes low is very critical.
That being said, to fix your credit scores and maintain the same efficiently, you need to have an in-depth idea about the same. No doubt there are many people out there who still struggle with a piece of profound knowledge about the CIBIL score and its importance. So, if you are one of such people, you can be sure that you are in the right place. Here, in this article, you can find all that you should know and understand about the CIBIL score. So, go ahead and read on!
What is CIBIL (Credit) Score?
The CIBIL Score is a three digit number that signifies a person’s credit history. The Score is estimated based on the person’s credit report. The CIBIL Score generally ranges from 300 to 850. A higher score signifies an excellent credit history. That being said, a low score means a bad or weak credit history that may affect your applications for credit cards and different types of loans such as home loan and mortgage loan.
What does Your Credit Score Mean?
In general, the credit scores evaluate the creditworthiness of the consumers. The money or loan lenders make use of this Score for judging the chances that the consumers would repay their debts. The credit score is often considered as a sign of financial trust.
People, whose credit scores are below 640, are usually referred to as subprime borrowers. These borrowers are typically charged a higher interest rate on the subprime mortgages and are given a comparatively shorter repayment period by the financial institutions or the lenders.
If you are curious to know about the CIBIL score range and as to what the scores signify, go through the below points to get a brief idea about the same:
- Poor: 300 – 579
- Fair: 580 – 669
- Good: 670 – 739
- Very Good: 740 – 799
- Excellent: 800 – 850
What is the Importance of Your CIBIL Score?
As already discussed above, your CIBIL score has high importance as the credit institutions use it for checking your financial worthiness when you put forth your loan application. Some of the critical importance or utility of your CIBIL Score are discussed in brief in the points mentioned below:
Loan Approvals
When you submit your loan application, the concerned lender or financial institute will first go through your entire credit history. This is where your CIBIL Score comes into the picture and plays a significant role in proving your financial worthiness. If the lender witnesses a high score, he will accept your application after checking your abilities to repay the granted loan. However, in case of a poor rating, your application will get rejected straight away, no matter how high your repaying capability is.
Loan at Lower Interest Rate
Having a high CIBIL score can even help you to get a loan granted at a comparatively lower rate of interest. This usually happens for personal loan applications where the rate of interest on the loan tends to vary over a broad range.
Quick Disbursal of the Loan
Excellent CIBIL scores generally get the loan applications approved quicker. Faster approval implies that the disbursement of the loan will even be faster.
What are the Parameters that Affect the CIBIL Score?
There is a broad spectrum of parameters that tend to influence your CIBIL Score. The key parameters are briefly discussed for your understanding of the points mentioned below:
High Utilization Percentage
Utilization percentage is nothing but the correlation between the overall outstanding loan and the credit limit. If you are repaying your debt at the right time and the balance of the credit card and the outstanding loan are going down, then the utilization percentage no doubt will also tend to go down. The credit bureau takes this very positively. However, if your loan is growing over time or the present balance on the credit card is rising, it signifies that your burden of repayment is increasing. This will affect your CIBIL Score adversely.
Delayed Payments
Any late payments or defaults found in the credit history in your recent past will affect your CIBIL Score adversely as it transmits a poor impression regarding your finance worthiness.
Higher Credit Applications
Too many credit applications imply that you are attempting to obtain loans very frequently. This represents you as someone who is always credit hungry. Something like this can adversely affect your CIBIL Score.
Too Many Unsecured Loans
Higher secured loans like a car loan or home loan in your portfolio can be better when it comes to your CIBIL Score as such loans are available at inexpensive rates. Although the unsecured ones are also readily available, they are expensive. Too many unsecured loans transmit a message to the lenders that you require servicing debts with higher rates of interest. It can, in turn, affect your CIBIL Score adversely.
Why does the CIBIL Score Go Down?
There is no single reason why your CIBIL Score is going down. Many reasons can be responsible for the same. Some of the principal causes of a low CIBIL score are discussed in detail in the points mentioned below:
Payment History
If you have taken loans or make use of credit cards and pay interest repayment or the minimum payment after the stipulated date, your CIBIL score will tend to fall. The consumers who pay late or make defaults on EMIs will suffer a negative credit and an adverse impact over the CIBIL Score.
Reaching Credit Limit Frequently
If the spending on your Credit Card is reaching the limit frequently, it will result in a continuous high burden of repayment. Keeping in mind this parameter, the CIBIL can retain you within a low CIBIL bracket, thereby making the lenders aware of your increased credit utilization.
Multiple Credit Enquiries
If you apply for several loans at the same time or requisition several credit cards simultaneously, your CIBIL score can get affected because the lenders would look into this as a matter of concern. Multiple loans and credit card enquiry implies that your burden of debt will increase that logically means your capacity to repay loans will reduce in the future.
How to improve the CIBIL Score?
Many remedies can help you in improving your poor CIBIL Score. Some of the measures you can take for the purpose are discussed below:
Check the Credit Report Regularly
Checking the credit report at regular intervals is a considerable measure as it will let you know two critical things. Firstly, you will get to see the credit card or loan where the delayed payments or defaults exist, which have adversely affected your CIBIL Score. Secondly, you can become aware of the data, which is present in your report. This will, in turn, help you to fix your CIBIL Score as if you witness the presence of contrary data, and you can approach CIBIL or the bank for correcting the situation.
Pay off Your Loans
If you have loans that you have delayed the payments for, make it a priority, and start paying your loans. In case you are experiencing difficulties in paying for your present EMI, approach your financial institute for assisting you in restructuring the debt so that it becomes more straightforward for you to pay.
Monitor Your Co-Owned Accounts
It is a scenario where you can suffer, although you aren’t at fault. In such a situation, if you have a joint applicant and he/ she has taken up a loan and has defaulted on the payments, your CIBIL score will also be affected negatively. The best method of avoiding this is ensuring that the fees for the cards and loans are being made on time.
Increase the Credit Limit
Increasing the credit limit doesn’t necessarily imply that you obtain an opportunity to spend extravagantly. The hike can have multiple pros if you wisely handle and maintain your credit.
It implies that you possess increased credit, and if the credit utilization is kept low, it can affect your CIBIL Score positively. However, you need to make sure that you do not end up spending beyond your capacity of repayment.
How Frequently Does the CIBIL Score Change?
The CIBIL scores are typically estimated at the time a lender makes a request. For calculating a score, the data on any one of the credit reports runs through the formula.
As the credit reports get updated whenever the new data arrives, the scores tend to fluctuate and change multiple times in a day. The Score that you receive will vary based on:
- The scoring organization used.
- The credit bureau that supplied the data of the credit report.
- The purpose for which the Score will get utilized- a car loan, mortgage loan, or credit card.
How Does the CIBIL Score Affect Loans?
With a typical loan, an average interest rate is advertised. Your CIBIL score has the potential to affect the interest rate of your investment. A good CIBIL score can entitle you to an interest rate that is below or at the average. On the contrary, a bad or poor CIBIL score can result in an increased rate of interest and lesser time duration for the loan repayment.
The Process of CIBIL Calculation
The credit bureau takes into account all the data regarding you in a single report for calculating your CIBIL Score. The Score is generally estimated based on your mind as well as the inquiry column in the credit report. The parameters that are typically considered when calculating the CIBIL score are discussed in brief in the following points:
- Credit History: The credit history holds the highest weight when your CIBIL Score is being calculated. Your credit history accords to 30 percent of your CIBIL score calculation.
- Credit Exposure: Your total outstanding credit amount will accord to 25 percent of your CIBIL Score.
- Credit Mix & Duration: The part of your financial portfolio that encompasses unsecured loan and secured loan coupled with the period of loan will accord to another 25 percent of your CIBIL Score.
- Other Parameters: The remaining parameters, such as your latest credit behavior and credit utilization, will contribute 20 percent of your CIBIL Score.
What is a Credit Report, and What does it contain?
A credit report is a synopsis of your entire credit history, together with some other necessary data. Your creditors or lenders deliver the story to the credit bureaus. The potential lenders and creditors make use of the credit reports to make decisions regarding lending you credit. Your credit report is even used by the other firms like the insurance or rental firms, to take risk decisions.
A typical credit report usually consists of the following four kinds of information:
- Identification information: This part of your credit report generally consists of personal data like your name, date of birth, and address. The identification information present on your credit report isn’t used for calculating your credit scores.
- Inquiry information: When applying for a loan, you permit your creditor to ask for your credit report’s copy. This is how the inquiries show up on the credit report. This section consists of a vivid list of all those who accessed your story in the last couple of years. The description that you see shows both “voluntary” as well as “involuntary” inquiries.
- Credit accounts: Credit accounts are also referred to as trade lines. The creditor’s report of all the accounts that you have created with them. They report the account type, the date on which it was opened, your loan amount or credit limit, payment history, and account balance.
- Collections and public record: Credit reporting firms even gather the public record data from the national and state courts and data on the outstanding debt from the collection agencies. The public record data consists of civil lawsuits and bankruptcies.
How to get CIBIL Score for Free from the Official Website of CIBIL?
Follow the following steps to get your CIBIL Score free:
- Create an Account: Go to the official website of CIBIL (www.cibil.com) and create your username along with the password. Enter your name, mobile number, and email address.
- Enter Your Details: Your details would include your address, date of birth, and identity proof.
- Verify Your Identity: You will get an OTP that will be sent to verify your details. You may be asked for more essentials for the verification process.
- Obtain Your CIBIL Score: This is the final step where you get the credit report and CIBIL score.
Although you can get your CIBIL Score free of cost from CIBIL’s official website, there is a limitation to it. That being said, you cannot get more than one free CIBIL report and score in a year. However, if for some reason, you want to continue checking your CIBIL Score from time to time, you can buy an Unlimited Access plan.
Unlimited Access is a time-based subscription plan that you can take up for your CIBIL report and Score. You can get the chance of refreshing your CIBIL report and Score every day during the period you have subscribed for. The process for applying for a paid CIBIL report and Score is straightforward. You can visit the CIBIL official website and select from the three available plans ‘“ Basic (get one year for INR 1,200), Standard (get six months for INR 800), and Premium (get one month for INR 550). After choosing the plan that stands to be perfect for your requirements and objectives, you can go ahead and avail the same.
From the above discussion, it is crystal clear that your CIBIL Score has a major importance when it comes to your credits. Hence, you must always take the right measures to maintain the Score. If you experience a poor or negative CIBIL score, you must take remedies to improve the same immediately. You can fix up your negative credits by managing your Credit Card responsibly, setting up payment reminders, and reducing your burden of debt. Raising the Score will require discipline and patience. So, make sure you have the qualities. Once your CIBIL Score improves, it is your responsibility to maintain the same so that you can enjoy the perks always.
Frequently Asked Questions (FAQ)
1) What is meant by CIBIL score?
Ans. CIBIL score is a three-digit score that tells the banks and other financial institutions about the history of your credit. The score is drawn from the credit history found in the CIBIL report. It is known as the Credit Information Report. From the CIR, you can quickly know about the payment history across any of the loan types and credit institutions. However, the credit report doesn’t contain any details of the savings, investments and fixed deposits.
2) What information is available in a credit report?
Ans. You can find the below-mentioned details in the credit report:
- Personal information
- Contact information
- Employment information
- Account information
- Enquiry information
3) How can one improve the CIBIL score?
Ans. You can quickly improve the CIBIL score by following the below mentioned ways:
- Paying all the dues and fee within the stipulated time
- Keeping your credit balances low
- Maintaining a healthy credit mix
- Reviewing your credit history from time to time
- Monitor guaranteed account every month
- Applying for new credit in equability
4) Is it possible to delete records in the CIBIL report?
Ans. There is no way to delete the records in your CIBIL report. The report is collected from the banks and various financial institutions. In the CIBIL report, there are no useful, bad or defaulter lists.
5) What is CIBIL Score 2.0?
Ans. CIBIL score 2.0 is a new and updated version of the previous CIBIL score. This has been designed keeping in mind the changing market trends and altering customer profiles and the information of credit. Banks and many financial institutions are always making use of this new-fangled report nowadays. In the CIBIL 2.0 score report, you will also be able to find the risk index score for individuals who have a history of credit for less than six months. The score is in the range of 1-5, where one denoted high risk, and 5 indicates low risk. If you don’t have any credit history, you would be marked with NA or NH, which means Not Available or No history.
6) What do the abbreviations NA or NH mean in a CIBIL report?
Ans. There is no need to worry when you come across NA or NH in a CIBIL report. When you find them, it may mean any of the below mentioned:
- You don’t have a credit history
- You don’t have any credit activity in the past couple of years.
- You might have all add on credit cards and have no credit exposure.
7) What factors are responsible for the CIBIL score?
Ans. The following factors are directly or indirectly responsible for the CIBIL score:
- Payment History
- High Credit Utilization
- Credit Mix
- Multiple Enquiries
8) What importance does CIBIL score carry regarding loan sanctions?
Ans. CIBIL score plays an essential role in the process of loan approval in the banks. Once the applicant applies for a availing loan from the bank, the bank makes a detailed audit of the CIBIL report and finds out the credit history of the loan applicant. If it finds the report satisfactory, the bank moves forward to approve the loan.
9) What is a good CIBIL score?
Ans. It is a matter of the fact that a credit score is a three-digit number. The credit score by CIBIL is in the range of 300-900. The credit score, which is more than 750, is referred to as a good CIBIL score. It should be your responsibility to maintain a good credit score so that you can avail many benefits from the banks at the time of need. If you fail to do so, you might not be able to smoothly get loans from banks.
10) What is the minimum CIBIL score required to avail a loan from banks or any financial institutions?
Ans. It is at all times advisable to possess a score of more than 750 to qualify for personal loans from banks easily. A rating is usually a three-digit number, and it tells the banks and any other financial institution about your past economic history. This is one of the very first pieces of the document that the bank authorities analyze to move ahead with the loan application.
Read Also: What is a Credit Card? Should I get a Credit Card?
