If you are someone who is interested in borrowing a loan or if you want to apply for a credit card, then knowing your credit score is extremely important. Credit score plays a vital role in determining your eligibility for borrowings. Lenders also pay close attention to your credit score for granting you the interest rate, repayment tenure and principal amount for your loan. Here we are going to understand what a CIBIL score is and what impact it has on your credit borrowing.
What is a CIBIL score?
The Credit Information Bureau (India) Limited (CIBIL) is the most popular credit information bureau out of the four bureaus that have been licensed by RBI. The three other credit bureaus operating in India, licensed by the RBI are Experian, Equifax and Highmark. Nevertheless, it is interesting to note that the CIBIL Score is the most popular and commonly utilised credit score in India.
CIBIL Limited currently holds credit information on 600 million individuals and 32 million firms. CIBIL India is a subsidiary of the TransUnion firm which is based in the USA. The CIBIL Score is a 3 digit numeric representation of your credit history which roughly reflects your credit spending habits as well as your past defaults if any. It usually ranges from 300- 900.
What is a good or a bad CIBIL score?
As mentioned earlier, the range of your CIBIL score ranges from lowest 300 to the highest score of 900. You must keep in mind that the higher the numerical value, the better are your chances of getting your loan or credit card application approved. Let us understand the CIBIL score ratings in detailed;
How does CIBIL score affect your borrowing?
When you apply for a loan, the first thing that any bank or financial institution looks at is the credit report. A low score may lead to rejection of the application while a high score is used by the lender to consider other factors about you to determine your credit worthiness.
CIBIL score is a vital factor considered especially when you borrow an unsecured loan. This is because of the fact that a good CIBIL score provides a sense of assurance that you are capable of repaying the loan on time and have a good track record of past repayments.
Hence, you may get the loan at your desired terms. However, a bad credit score reflects as a sign of irregularity and that you have made defaults in past payments. This increases the risk for lenders and as a result, it may impact your loan approval.
How can you improve your CIBIL score?
You can improve and build your CIBIL score in many ways which can improve your future borrowings. If you already have a current loan or any credit card bill pending, then you must ensure that you do your payments on time.
In the case of credit cards, you should try to make a one time complete payment of your bills and avoid making minimum amount payments. With this, you can stay ahead of your bills and avoid the risk of any defaults.
You should always be mindful of how much debt you are borrowing as excessive usage of credit cards and high loan amounts can put you at a risk of debt trap. With this you may end up in a situation where you have to repay amounts more than you can even afford.
Conclusion
It is always a good idea to plan your financial needs and always use credit cards wisely. In the case of loans, you must always stick to the amounts that you really require as it will result in higher EMIs.
CIBIL score can not be improved overnight, however, with constant efforts and regular repayments of bills and EMIs, you can gradually increase your CIBIL score and make informed decisions.
