Bank and lending institutions can reject loan applications for a number of reasons. One reason that plays a critical role in a borrower’s eligibility is their CIBIL score. Studies have shown that close to 72% of all loans get rejected due to inadequate credit scores. This makes it highly critical to maintain the right CIBIL score to be eligible to borrow in times of need. So, what do you need to get your CIBIL score up? Here’s all that you need to know in order to maintain or pull up your CIBIL score, so you never have to worry about loan rejection.
Before we dive into the details, let's first get some basics out of the way.
A CIBIL score is a number that indicates to a bank, about a borrower’s creditworthiness. It helps the bank decide whether a borrower is likely to pay back the loan during the loan tenure. A borrower’s credit score is based on their history with other banks and lending institutions and takes into account any form of credit – loans, credit cards, overdraft, and more. The CIBIL score ranges between 300-900 (300 being the lowest, 900 being the highest). A score between 300-700 indicates a lower chance of credit approval. Anything higher than 700 stands a better chance. Scores above 750 are generally considered ideal and show a high degree of borrower creditworthiness. Borrowers with no credit history start with a CIBIL score of 0 and have to progressively make their way up to higher scores.
The Credit Information Bureau (India) Limited (CIBIL) or CIBIL, as it's popularly known, is a credit bureau that most banks and lending institutions use to check a borrower’s credit score. There are other credit bureaus like Experian and Equifax, which are popular globally; however, they are less used in India. Historically, for lenders to check borrowers’ creditworthiness, the process was long-winded and usually took days if not weeks. To work around this, credit rating agencies came up with a score-based rating system. This made it easy for banks and lending institutions to make decisions on whether or not an applicant was eligible for a loan or credit card.
Today, credit rating bureaus like CIBIL not only have all the data about a borrower’s credit history, but they also work with over 2,400 lenders across the country.
When a borrower approaches a lender, like a bank or financial institution, for credit, the lender first checks the borrower’s CIBIL Score or Report. If the borrower’s score is low, there are high chances that the lender will outrightly reject the loan application altogether. If the score is on the higher side, the lender will then further process the application to determine if the applicant is credit-worthy. On the topic of individual creditworthiness, CIBIL scores are also applicable when it comes to business loans. A key point to remember is that a low credit score could also have an impact on whether a business can attract investments.
You can improve your score by being financially smart. What does this mean? Simply put, repay your Credit Card bills on time, don’t miss your loan EMIs, never default on debts, use credit wisely. Although it may sound easier said than done, try and avoid defaulting as far as possible. Your credit score will progressively rise after consistently making repayments on time. Just try and be as consistent with repayments as feasibly possible and remember that it is a gradual process.
Another way to improve your credit score is by reducing your credit utilization ratio. Your credit utilization ratio is the amount of revolving credit you're currently using divided by the total amount of available revolving credit. For example, if you have a credit card with an outstanding debt. As soon as you reduce your outstanding balance or increase your credit limit, your credit utilization will decrease and your credit score will go up. A higher credit utilization is an indication that the borrower may be credit hungry. According to experts, it's best to keep credit utilization below 30% of the available credit limit.
Borrowers with a CIBIL score of 750 or higher enjoy loans with lower interest. Banks and lending institutions offer discounts in the form of lower interest rates to lure in new customers. This will also give you the leverage to negotiate on lower interest loans with the lender. There are a number of top banks and lending institutions that offer preferential pricing on loan interest rates for borrowers with a 750+ credit score.
Now that you have detailed knowledge about CIBIL Score and how it works, be smart about credit before you apply for your next loan or credit card. Keeping your CIBIL score high will give you access to funds when you most need it and you can apply on your terms. If you are looking for a loan, visit Finserv MARKETS. Here you’ll find various kinds of loans like Personal Loan, Home Loan at attractive interest rates. You can also check your CIBIL Score at Finserv MARKETS.