A credit score is one of the critical factors in determining eligibility for accessing loans, credit cards, and other financial products. The Credit Information Bureau India Limited ( CIBIL™) is one of the credit bureaus in India rating the creditworthiness of individuals and the credit score is a three-digit number ranging from 300 to 900, which indicates an individual’s creditworthiness. The higher the CIBIL™ score, the better their creditworthiness is and the better their chances of getting approved for loans, credit cards, and other credit products.
Understanding CIBIL™ score:
The CIBIL™ score is based on an individual’s credit history, which includes credit card usage, loan repayment, and other forms of credit. CIBIL collects this information from banks, credit card companies, and other financial institutions. They then use a proprietary algorithm to calculate the credit score.
A credit score of 750 or above is considered to be good and individuals with this score are likely to get quick approvals for loans and credit cards at favourable terms without any hassle. A score between 600 and 749 is considered fair, and individuals with this score may face some challenges in getting approvals for loans and credit cards. A score below 600 is considered poor, and individuals with this score may find it difficult to get approval for loans and credit cards.
Importance of CIBIL™ score:
Having a good CIBIL™ score is crucial for accessing loans, credit cards, and other credit products. Banks and other financial institutions use the CIBIL™ score to assess an individual’s creditworthiness and decide whether to approve their loan or credit card application. A high CIBIL™ score indicates that an individual has a good credit history and is likely to repay the loan or credit card dues on time.
Apart from getting approved for loans and credit cards, a good CIBIL™ score also helps in getting lower interest rates. Banks and other financial institutions offer lower interest rates to individuals with a high credit score as they are considered less risky. A low-interest rate can result in significant savings over the loan or credit card tenure.
Improving CIBIL™ score:
If an individual has a low CIBIL™ score, there are several ways to improve it.
- The first step is to review their credit report and identify any errors or inaccuracies. If there are any errors, they should be reported to the credit bureau and corrected.
- The second step is to pay all outstanding dues on credit cards and loans on time. Late payments and defaults can significantly impact the CIBIL™ score. Individuals should ensure that they make timely payments to avoid any negative impact on their credit scores.
- The third step is to maintain a healthy credit utilization ratio. The credit utilization ratio is the percentage of the total credit limit used by an individual. A high credit utilization ratio can indicate that an individual is dependent on credit, which can negatively impact their credit score. Experts recommend maintaining a credit utilization ratio of 30% or less to maintain a healthy credit score.
- The fourth step is to maintain a good credit mix. Having a healthy mix of secured and unsecured loans can positively impact the credit score. A secured loan is one that is backed by collateral, such as a home loan or car loan. An unsecured loan is one that is not backed by collateral, such as a personal loan or credit card.
- The fifth step is to avoid simultaneously applying for multiple loans or credit cards or within a short period. Multiple applications within a short period can negatively impact the credit score as it can indicate that an individual is credit hungry.
Conclusion
A good CIBIL™ score is essential for accessing loans, credit cards, and other credit products. Individuals should strive to maintain a healthy credit score by paying all outstanding dues on time, maintaining a healthy credit utilization ratio, maintaining a good credit mix, and avoiding applying for multiple loans or credit cards simultaneously or within a short period. A high credit score can result in getting approval for loans and credit cards easily and at lower interest rates – this can result in significant savings over the loan or credit card tenure.
It is important to note that improving a low CIBIL™ score takes time and effort. It is not an overnight process, and it requires discipline and financial planning. Individuals should avoid taking shortcuts, such as settling for a lesser amount than what is owed or making partial payments, as these can also negatively impact their credit score.
Apart from maintaining a good credit score, individuals should also monitor their credit reports regularly. Credit reports can contain errors or inaccuracies that can negatively impact the credit score. By monitoring the credit report, individuals can identify any errors or inaccuracies and report them to the credit bureau for correction.
In addition to maintaining a good credit score and monitoring the credit report, individuals should also be aware of their credit utilization habits. Credit cards can be a convenient way to access credit, but they can also lead to debt piling up if not used responsibly. It is important to use credit cards wisely and avoid maxing out the credit limit. Paying off the credit card balance in full and on time can also help maintain a healthy credit score. By following these steps, individuals can improve their credit scores and access credit when needed.
