Mastering Your CIBIL Score: Importance, Factors, How to Check Online, Improve Creditworthiness Effectively

CIBIL Score is something we hear when we talk about the loan. t is the most important term to show the financial status of a person. If you are planning to get a loan and credit card, first you have to submit your CIBIL Score

What is the CIBIL Score?

The CIBIL stands for the Credit Information Bureau (India) Limited. It is a three-digit numerical value of an individual’s creditworthiness, primarily based on their credit history. It is one of the most important scores to consider when evaluating a borrower’s credit application. CIBIL Score ranges between 300 to 900. Where 300 shows the lowest CIBIL Score and 900 shows the individual’s highest and best CIBIL Score.

The CIBIL Score plays an important role in the loan or credit card approval process. A high CIBIL Score indicates a strong credit profile, which shows that borrowers can pay the money back. In addition, the High CIBIL Score also favours the borrowers to get lower interest rates and higher loan amounts. On the other hand, low CIBIL scores mostly get rejected in the loan application or credit card application or if it’s approved, the borrower has to pay high-interest rates.

What Factors Affect CIBIL Score?

Our CIBIL score is made up of several factors. These factors include payment history, types of credit, new credit, credit usage, and length of credit history.

• Payment history: When a lender looks at your credit report, they want to see if you pay all your debts on time. Your payment history greatly influences your CIBIL score. It reflects your perseverance to pay off debts and pay on time. It also shows delinquent accounts and bankruptcies, judgments and liens. A bad credit history can have a significant negative effect on your CIBIL score.

• Types of credits: Credit diversity is another factor that is taken into account for your CIBIL score. A mix of credit types can positively affect your CIBIL score because it tells your lender that you can manage different types of debt well. Having a mix of credit types (such as credit cards, mortgages, personal loans, etc.) can boost your score a little.

• New credits: Opening many new lines of credit in a short time can signal to creditors that you are at high risk. The fewer new credits you have on your report, the better it will be for your score. How you obtain credit has a small impact on your overall CIBIL score.

• Use of credit: Credit utilisation refers to the percentage you use of the credit you have. To find out your credit utilisation ratio, divide your total debts by your total available credit. A high credit utilisation ratio can lower your CIBIL score; For creditors, it’s best not to reach or exceed your credit limit frequently. It is important to maintain low balances on your credit cards to maintain a low credit utilisation ratio.

• Age of credit history: If you’ve made consistent, on-time payments on your credit cards for many years, it’s easier to know if you’re a reliable borrower. However, if you have only been paying for a few months, your ability to pay off debt is not as evident. Having a long credit history is usually better for your CIBIL score.

What is a Good and Bad CIBIL Score?

As said, the CIBIL Score varies from 300 to 900. A score lower than 750 is considered lower and categorised into fair, poor or bad according to the range. Let’s know about them in detail-

• Excellent CIBIL  Score (750-900): A CIBIL Score ranging between 750 to 900 is a sign of a strong credit profile. There is a higher chance of getting loan approval by the bank. In addition, Borrowers with excellent credit scores get lower interest rates, higher credit limits and better terms and conditions from the banks.

• Good CIBIL Score (700-749): A CIBIL Score between 700 and 749 indicates a good credit score, it is not a good and excellent credit score. Borrowers with good CIBIL scores are most likely to get loan approval and credit card approval from the bank. Moreover, they may not receive the best interest rates and terms and conditions from the bank. However, the process and offers vary with the banks.

• Fair CIBIL Score (600-649): Credit score falling between 600 to 647, comes in the fair categories. The borrowers can get loan approval and credit card approval but at a high interest rate and with strict terms and conditions. The bank charges a high-interest rate to the borrower.

• Poor CIBIL Score (600-649): A credit score ranging between 600-649, is a poor CIBIL Score. It is difficult to get bank approval for a loan or credit card with a poor credit score. In addition, if you have a poor CIBIL Score, drop the idea of a loan and credit card because banks will be charged extremely high-interest rates if they offer you credit.

• Bad CIBIL Score (Below 600): A CIBIL Score lower than 600 is considered a bad credit score. There are no chances to get a bank loan or credit card with this credit score.

How To Calculate CIBIL Score?

Calculating a CIBIL score involves a complex algorithm because various factors are involved in it. The exact formula to calculate the CIBIL score by CIBIL(Credit Information Bureau India Limited) is proprietary. Several key factors influence your CIBIL Score. Here is an overview of how your CIBIL score is calculated-

• Payment History (35% Weightage): Your payment history influences the CIBIL Score. A bounce in EMI, default and bankruptcies give a negative score

• Credit Utilisation Ratio (30% Weightage): Maintaining a low credit utilisation ratio is a sign of good credit management.

• Length of Credit History (15% Weightage): It refers to how long you’ve been using credit.

• Types of Credit (10% Weightage): Types of credit like instalment loan or revolving loan are also considered

• Recent Credit Inquiries (10% Weightage): Each time you apply for new credit, it will record and drop your score.

How To Check CIBIL Score Online?

To check your CIBIL Score online, here is the step-by-step guide-

• Visit the official website of CIBIL (Credit Information Bureau India Limited –  “https://www.cibil.com/”. Many other websites also claim to give accurate CIBIL scores, but we suggest only going with the official website.

• On the homepage, look for the section – check your CIBIL Score.

• Click on the Check your CIBIL score button.

• Now, you have to provide certain personal information to verify your identity. Enter details like full name, date of birth, gender PAN card number, email address and mobile number. make sure to enter correct and accurate details

• Now, you have to authenticate yourself by providing the OTP received in the entered mobile number.

• Once you successfully verified, you will get your CIBIL credit report and score. This CIBIL credit report will contain credit account, payment history, credit inquiries and any negative or positive remarks.

• Find the CIBIL Score in your credit report. It will range from 3000 to 900. A higher score is a sign of better creditworthiness.

• Download your CIBIL credit report to use in future. It is also a good idea to keep a copy of your recorder and monitor the changes from time to time.

• Make a habit of checking your CIBIL score regularly, at least once a year.

How To Improve CIBIL Score?

If you want to improve your CIBIL score, here are some recommendations. It is good to have a high CIBIL score to maintain good credit health and increase your chances of loan or credit card approval.

• Pay your bills on time: Timely payment of credit bills, loan EMIs and other debts is one of the important factors which affect the credit score. You can set up an automatic payment or reminder to improve your CIBIL Score.

• Reduce credit card balance: Try to reduce credit card use. It is good to use only 30% or below 30% of your available credit card limit.

• Limit new credit application: Each time applying for new credit gives a hard inquiry on your credit report. Reduce the number of credit applications.

• Monitor your credit report: Regularly review or monitor your credit report whether you have unwanted inquiries or not.

• Maintain a long credit history: The length of your credit history matters. Keep older accounts open, even if you are not using them, show a longer credit history and improve CIBIL score.

• Use credit responsibly: Use every credit responsibly and wisely. Avoid maxing out credit cards, late payments and defaulting on loans.

• Settle Outstanding dues: If you have outstanding dues in the account, sort them out as soon as possible. Pay off the overdue balance and negative settlement in your report.

• Reduce your debts: Reducing your debt is another way to improve your credit score. When you pay off your debts, your credit score improves because your credit utilisation ratio decreases. Make a list of your debts and plan how to pay them off. There are different methods to do it. You can reduce your debt quickly if you pay more than the minimum each month. You can take care of your smaller debts to reduce the number of bills you pay. You can also focus on the highest-interest debts first. Do some research and do the maths to find out which method will be best for you.

• Seek a professional: You can also ask for guidance from a professional. Some many financial professionals and advisors help to improve the CIBIL Score as well as help to get loans and credit cards

Remember, the CIBIL score tackles time and is consistent to improve.

FAQs:-

1. What is a CIBIL Score?
– A CIBIL Score is a three-digit numerical representation of an individual’s creditworthiness, based on their credit history.

2. Why is the CIBIL Score important?
– It plays a crucial role in the loan approval process, indicating the borrower’s ability to repay debts.

3. How is the CIBIL Score calculated?
– It’s calculated based on factors like payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries.

4. What is the ideal CIBIL Score?
– An ideal CIBIL Score ranges between 750 to 900, indicating a strong credit profile.

5. How can I check my CIBIL Score online?
– You can check your CIBIL Score online through the official CIBIL website by providing necessary personal details.

6. How often should I check my CIBIL Score?
– It’s recommended to check your CIBIL Score at least once a year to monitor your credit health.

7. What factors affect the CIBIL Score?
– Payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries are the main factors.

8. Does checking my own CIBIL Score affect it?
– No, checking your own CIBIL Score does not impact it negatively. It’s considered a soft inquiry.

9. Can I improve my CIBIL Score?
– Yes, you can improve your CIBIL Score by paying bills on time, reducing credit card balances, and limiting new credit applications.

10. How long does it take to improve a CIBIL Score?
– It varies depending on individual circumstances, but positive changes can be seen in a few months to a year with responsible credit management.

11. Can a low CIBIL Score affect my loan application?
– Yes, a low CIBIL Score can lead to loan rejection or approval with higher interest rates and stricter terms.

12. Is there a way to dispute errors on my CIBIL report?
– Yes, you can dispute errors on your CIBIL report by contacting CIBIL directly and providing relevant documentation.

13. Does closing a credit card affect my CIBIL Score?
– It may impact your CIBIL Score, especially if it reduces your overall credit limit and increases your credit utilization ratio.

14. How long does negative information stay on my CIBIL report?
– Negative information like late payments or defaults typically stays on your report for up to 7 years.

15. Do lenders consider factors other than CIBIL Score during loan approval?
– Yes, lenders may consider other factors like income, employment history, and existing debt obligations.

16. Can I get a loan with no credit history?
– It may be challenging, but some lenders offer options like secured credit cards or loans to individuals with no credit history.

17. Will my CIBIL Score be affected if I apply for multiple loans?
– Yes, multiple loan applications within a short period can negatively impact your CIBIL Score due to multiple hard inquiries.

18. Can I transfer my CIBIL Score from one country to another?
– No, CIBIL Scores are specific to India and cannot be transferred to other countries.

19. Is there a minimum CIBIL Score required for credit card approval?
– While each bank has its own criteria, generally a CIBIL Score of 700 or above increases your chances of credit card approval.

20. Can I get a free copy of my CIBIL report?
– Yes, you’re entitled to one free credit report per year from each credit bureau, including CIBIL, as per RBI guidelines.

 

 

 

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