Digital tools and technologies have had an impact on every sector of the economy. Processes that would require several days are completed in a matter of seconds. Digital tools have enhanced the quality of data and improved compliance. The financial sector has been one of the biggest beneficiaries of digitization. Without easy availability of credible data, it was hard to ascertain the risk profile of a borrower. Different agencies used to maintain different financial data of a borrower, which made access difficult for lenders.
The scenario has changed drastically in the last few years. CIBIL score has emerged as the one-stop solution for lenders who want to ascertain the credit profile of a borrower.
What is CIBIL Score?
The CIBIL score is nothing but the credit score of an individual. It is just like the marks you used to get as a student. Your financial behaviour over a period of time is evaluated and a score is assigned, which is known as the CIBIL score. It is a three-digit numeric score ranging between 300 and 900. An individual’s complete borrowing history such as repayment record, repayment pattern, outstanding debt, loan accounts and defaults are taken into consideration while assigning the CIBIL score. Trans Union CIBIL is the credit information company that maintains and collates the data and hence credit score is called CIBIL score. Every lender runs a CIBIL score check when you approach it for a loan. Let us understand the mechanism and why it is important to maintain a good CIBIL score.
How Does it Work?
There are hundreds of banks and non-banking finance companies in the country and millions borrow from them. Borrowings can be for anything from buying a mobile phone to buying a house. With the spread of small-ticket retail credit, loans have become a part and parcel of a common man’s life. All kinds of borrowings ranging from car loans to credit card dues are recorded. Lenders send borrower’s financial data to credit information companies like CIBIL. Credit data is used to determine the financial behaviour of the borrower. The financial behaviour includes timely payment of EMIs and credit card dues.
Even if you have availed different loans from different lenders and miss a payment to one of the lender’s, your CIBIL score will be affected. Generally, people are enthusiastic while taking a loan. Many people don’t think about repayment in the excitement of making a purchase. Financially undisciplined borrowers gradually start missing their payments and become irregular with repayments. The lender periodically exchanges data with CIBIL and as soon as you miss your first installment your CIBIL score gets affected.
When you miss an installment, the lender allows a grace period or sends a reminder. If you still fail to pay up, the lender takes more stringent steps like legal action. In a last-ditch effort, the lender provides the option of a one-time settlement to the borrower. Opting for a one-time settlement may clear you of all the liabilities, but it cannot guarantee the availability of loans in the future.
Reaching the stage where the lender has to offer a one-time settlement will severely affect your CIBIL score. Every lender has different criteria for CIBIL score. Some will offer a loan even to borrowers who have a CIBIL score lower than 600, albeit at a very high-interest rate. Some lenders refuse borrowers even after their CIBIL score is slightly higher than 600. CIBIL score is generally categorized into three brackets. The lowest bracket is 300-600, followed by 600-750 and 750 and above. People having a CIBIL score of 750 and above will get the best offers and the lowest interest rate on loans. These are the most sought after categories of borrowers. If the CIBIL score is between 600 and 750, you will get a loan but will have to pay a relatively higher interest rate. People with a CIBIL score lower than 600 are either refused a loan or have to pay extremely high-interest rates.
As more and more lenders opt for a CIBIL score check before sanctioning loans, it has become imperative to maintain a healthy credit score. You can maintain a good CIBIL score by paying your installments on time and avoiding unnecessary leverage. Access to the CIBIL score is not free of cost, but you can check your CIBIL score for free through Finserv MARKETS. One just has to provide basic details for sign up on Finserv MARKETS and can know his/her CIBIL score. With the knowledge of the CIBIL score, you can try to improve it before approaching a lender for any kind of loan. Additionally, you will also be provided with a customized Financial Health Check Report. It makes it easier to understand the CIBIL score.
Also read steps on how to check CIBIL Score by pan Card
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