You must have come across the CIBIL score/ credit score mentioned as one of the decisive factors when you apply for a credit card or loan. Understanding a Credit score and its importance is crucial to maintaining the right score and bagging the best of opportunities.
What is a CIBIL Score?
A credit score or CIBIL score is a number representing your creditworthiness as a borrower, i.e., your ability to pay back the borrowed sum. Several organisations or credit bureaus determine your credit score by considering various factors, including
- Repayment history
- Credit utilisation ratio
- Age of credit accounts
- New credit inquiries
- Credit mix
CIBIL (Credit Information Bureau India Limited) – a credit bureau company in India provides a credit score which is also called a CIBIL score. You can signup via the website or CIBIL score app and use your CIBIL score login credentials to check the status.
A CIBIL score is a three-digit number that ranges from 300-900. A higher corresponds to better creditworthiness. You should make it a point that your score does not fall below 600.
What is the Importance of CIBIL Score?
Now that you know what a Credit score is, let’s explore its importance. Why do companies rely on CIBIL scores before making a decision? The following points will answer your questions in detail:
Significance in Loan Approvals
A Credit score is most important in determining whether or not you are eligible for a loan. So, before a loan-lending company approves a loan to a borrower, they evaluate a borrower’s CIBIL score. A good CIBIL score indicates that the borrower has managed their earlier debts responsibly. On the contrary, a low credit score implies that the borrower did not make timely payments and had an irresponsible approach to repayments.
Availability of Higher Loan Amounts
In addition to loan approvals, your loan amount is determined by your overall Credit score. Those with a good CIBIL score are perceived to be better borrowers, and the lender feels confident in giving you loans of higher amounts. However, if your credit score is low, you can get loan approval, but the total loan amount sanctioned will be less.
Credit Card Eligibility
A credit card issuer considers several factors before approving a credit card application. The applicant’s Credit score is one of the major eligibility criteria. If you have a good credit score, you will be eligible for the best credit cards in the country. Realising the huge amount of risk involved with every credit card application, banks and financial institutions turn highly sceptical about people with low Credit scores. Additionally, you will be eligible for higher credit limits if you improve your credit score while having an existing credit card.
Lower Interest Rates
With a low Credit score, you might get loan approval, but the lenders tend to charge higher interest rates. Therefore, maintaining a good score, at least above 600, is vital to negotiate lower interest rates.
Buying Assets on EMI
Often you prefer buying a television, laptop, or phone on EMI as it comes with additional perks. However, your eligibility for EMI purchases also depends on your credit score. Thus, as always, having a high Credit score helps.
How to Improve your CIBIL Score?
When maintaining a good Credit score is so important, the first question is: How can I improve my bad CIBIL score? Or how do I maintain a good Credit score from the very beginning? Here are some sure-shot methods that can help boost your Credit score.
- Borrow Realistic Loans: You must take a loan whose EMIs fall well into your budget. Don’t have too many debts at a time. Keep closing off your present debts and watch your Credit score rise.
- Pay Your Dues Timely: Make your loan payments and credit card dues on time to maintain a good CIBIL score. You can also opt for ECS (Electronic Clearance Service) to make timely payments.
- Never be a Defaulter: Failing to pay back a borrowed sum makes you a defaulter. This situation brings a great downfall in your Credit score.
- Have a Low Credit Utilisation Ratio: The percentage of the total amount of sanctioned credit you use determines your credit utilisation ratio. Try to keep the ratio to 30% to improve your Credit score.
Adopt the best practices to maintain a good Credit score & apply through Wishfin CIBIL Score App and land chances of better deals and faster loan/credit card approvals. It is wiser to make yourself eligible for a maximum number of financial assistance with the maintenance of a good Credit score.
