When you apply for a loan, the bank or financial institution will take a few days to carefully consider the application before either approving or rejecting it. During this time, the lender will check your creditworthiness and the loan amount you are eligible for based on certain parameters such as current liabilities and your past credit history. Your creditworthiness is quantified with the help of a CIBIL score. If you aren’t sure what this is, here’s a look at everything about it that you need to know.
What is CIBIL?
The Credit Information Bureau (India) Limited or CIBIL is where your credit information is collected and stored. CIBIL is one of the 6 registered Credit Bureaus in India registered under Securities and Exchange Board of India (SEBI). This information is collated and you are assigned a CIBIL score based on the analysis. This is a three-digit number that could be range from 300-900. Your score will be shared with banks and financial institutions that request for it in case you apply for a loan. Based on your score, your loan will be accepted or rejected.
What is A CIBIL Score?
A CIBIL score is a numerical expression based on an individual’s credit files, which shows the creditworthiness of an individual. It is primarily based out of a credit information report typically sourced from an authorized credit bureau.
What is Credit Information Report?
Financial institutions and banks will submit all credit card and loan details to the CIBIL every month. After this information is received, CIBIL will draw up a report that is also known as the Credit Information Report (CIR).
How Do I Check My CIBIL Score?
You can check your CIBIL score by visiting their website and filling out a form. However, you would have to pay for the information. You can also check your CIBIL Score with Finserv MARKETS that too for free.
CIBIL Score and Its Role in Loan Approval
The CIR will have your CIBIL score on it. This will be your credit score, and it plays a vital role in your role application process. This helps banks and financial institutions to immediately determine if they should further evaluate your application. Technically, the average score for a loan to get approved is 720 or above. However, there are steps you can take and avail personal loan for low CIBIL score.
Credit Score Ranges
Below are the different ranges of a CIBIL score.
NA/NH: If you don’t have never availed credit, your CIBIL score will be NA. This means you don’t have a credit history.
350 – 549: A credit score in this range is considered to be a poor score. Most lenders would reject your loan application if you have a credit score in this range. Thus, you must try to boost your credit score by making timely repayments and clearing outstanding dues.
550 – 649: CIBIL score in this range is considered to be average. Only a few lenders would offer you a loan with a credit score in this range. They would think of you as a high-risk borrower and charge a high-interest rate.
650 – 749: If you have a credit score in this range, several financial institutions would provide you loans at a competitive interest rate.
750 – 900: CIBIL score in this range is considered to be excellent. Lenders will consider you a low-risk borrower and offer you loans at attractive interest rates. Also, if you have a credit score in this range, you can also negotiate with the lender to avail credit with more favorable terms.
Factors That Affect Your Score
Below are the four major factors that could influence your credit score:
Your score will allow loan providers to judge if you are someone who is capable of repaying the loan. Late payments and EMI defaults could negatively impact your CIBIL score.
High Utilization of Credit Limit
When there is an increase in the current balance of your credit cards, this shows that you have an increased repayment burden. This is something that could negatively impact your score. Another important thing to keep in mind is that increased spending on your credit card does not necessarily mean that your score will be impacted negatively.
Higher Percentage of Credit Cards and Personal Loans
Credit cards and personal loans are unsecured lines of credit. Having too many unsecured loans as opposed to secured loans like a car or home loan can negatively affect your CIBIL score. Having a good balance of unsecured and secured loans will positively impact your score.
Recent New Accounts
The amount of credit cards and loans that are sanctioned to you shows an increase in your debt. So, if you have too many loans and credit cards that are approved within a short period of time, this could affect your CIBIL score negatively.
How to Increase My CIBIL Score?
Maintaining a good credit history will improve your score. Here are a few points to maintain a good score.
- Ensure you pay all your dues on time to avoid a negative impact on your score
- Avoid too much of credit and control your credit utilization to keep your score positive
- Have a good mix of unsecured and secured loans
- It’s important that you purchase your credit report at regular intervals so that you are aware of your score
Myths About CIBIL/Credit Score
Lenders check the CIBIL score of the borrower before sanctioning the loan application. Higher the CIBIL score, the better are the chances of loan approval. Therefore, it is important to check CIBIL score and understand its importance before applying for a loan. However, there are several myths associated with CIBIL score.
Let’s have a quick look at some of the most common myths associated with CIBIL score:
1. CIBIL score does not hamper loan eligibility
Since the CIBIL score determines your creditworthiness, a high CIBIL score will make you a low-risk applicant. This will enhance the chances of your loan approval. Apart from increasing your loan eligibility, a high credit score will also make you eligible for a higher loan amount at a reduced interest rate.
2. Making investments can affect CIBIL score
Smart investments can help you secure your future without hurting your CIBIL score. Whereas, delayed EMI or credit card payment can affect your CIBIL score significantly.
3. You can’t avail a loan with low credit score
Availing a loan can be difficult if you have a low CIBIL score. However, there are some lenders that may approve your loan application despite your low CIBIL score. It is to be noted that lenders may charge a high interest rate while providing personal loan for loan low CIBIL score.
Now that you are well aware of common credit score myths, ensure to make a note of it while applying for a loan. You can improve your CIBIL score by making timely repayments and clearing your outstanding dues.
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