Your Guide To Understanding The CIBIL Score

If you’re looking to obtain a loan, one of the major factors that a bank considers is your credit score. CIBIL score plays a significant role in the loan and credit card approval process. Banks and other financial institutions apply the CIBIL score as their first screening criterion when they review loan or credit card applications. Credit Information Bureau (India) Limited, which is India’s first credit bureau or credit information company, is abbreviated as CIBIL. The CIBIL Score represents an individual’s credit history and is a 3-digit number ranging from 300 to 900. Financial institutions calculate the score based on the credit report, which includes the credit history. A high score indicates a good credit history, making it better the closer it is to 900. On the other hand, a score close to 300 indicates a poor credit history, which could result in a loan application being rejected.

Division of your CIBIL score

• Credit history: 30% of the CIBIL score
• Credit utilization: 25% of the CIBIL score
• Credit mix and duration: 25% of the CIBIL score

How is the score calculated?

• The CIBIL Score is derived using the credit history found in the CIBIL Report.
  
• It considers the credit profile of borrowers during the past 36 months.
  
• The credit profile comprises various types of loans, including home loans, credit cards, personal loans, automobile loans, overdraft facilities, etc., that one has obtained, along with their payment history.

What factors impact your score?

• Your score is negatively affected when you make late payments or default on your EMIs.
  
• Maintaining a balanced mix of secured and unsecured loans is likely to positively impact your credit score.
  
• Too many loan inquiries can negatively impact your score because they suggest that you may increase your future loan burden.
  
• A high credit utilization limit indicates an increasing debt burden over time, which can have a negative impact on your score.

What can you do to improve your CIBIL score?

Taking action today can help you establish a stronger and healthier credit footprint. Here are a few helpful tips to improve your score:

• Make sure to always pay your dues on time as lenders view late payments negatively.
  
• To maintain a healthy credit profile, keep your balances low by being prudent and avoiding excessive credit usage. Take control of your credit utilization.
  
• Ensure a healthy credit mix by maintaining a balance between secured loans (such as home and auto loans) and unsecured loans (such as personal loans and credit cards). Having too many unsecured loans may be seen in a negative light.
  
• When applying for new credit, do so in moderation. This shows that you are not constantly seeking excessive credit.
  
• Make sure to regularly monitor your co-signed, guaranteed, and joint accounts. Keep in mind that you share equal responsibility for missed payments in these accounts. Negligence from your joint holder or the guaranteed individual could impact your ability to access credit when you need it.
  
• Frequently review your credit history throughout the year. Regularly monitor your credit score and Report to prevent unpleasant surprises, such as a rejected loan application. Checking your report regularly will also help you identify any potential inaccuracies. If you notice any discrepancies, you can log a dispute on the CIBIL website or request the lender to report the correction to CIBIL.

Where do you check your CIBIL score?

You have the option to check your CIBIL score on the official website of CIBIL either for free or by selecting a subscription plan. With a free subscription, you can view your current CIBIL Report once a year. CIBIL also offers paid plans that provide access to additional features based on the chosen plan. Additionally, you can check your credit score for free on many other websites without much hassle. All you need to do is provide some basic information about yourself, and verify your identity by entering the OTP sent to your email address and mobile number. Then, you will have your score report ready to view. Another option is to check your CIBIL score on Gpay, a new feature in the app.

Thus, understanding the CIBIL score is essential when it comes to obtaining a loan or credit card. With this knowledge and proactive approach, you can build a strong credit foundation and achieve your financial goals, and be prepared for emergencies.