Cibil score: Everything You Need To Know

A CIBIL score plays an important role in an individual’s life as it represents your financial and credit health. Your CIBIL score is a result of your financial behaviour and hence you need to maintain a certain financial discipline. A high CIBIL score makes you eligible for lower interest rates and offers quicker approval. On the other hand, an irresponsible payment behaviour hampers your CIBIL score and decreases your chances for a loan or a credit card approval.

What is a CIBIL score?

A CIBIL score is offered by TransUnion CIBIL, which is the first credit bureau in India. Licensed by the Reserve Bank of India, CIBIL calculates your CIBIL score based on  an individual’s credit record and refund behaviour. A CIBIL score is a numerical representation of your creditworthiness and determines your ability to handle your credit. It ranges anywhere between 300-900, 900 being the highest. Higher the CIBIL score, better the chances are for you to get low-interest rate credit cards, approval for higher credit limits, quick loan approvals, home loans and car loans. You can check your CIBIL score for free on the CIBIL’s website. Generally,  lenders like banks and non-banking finance companies (NBFC) consider a CIBIL score of 700 and above as ideal. In recent times, lenders have started giving preferential pricing and special discounts to individuals who have a CIBIL score of 700 and above.

A number of public sectors banks have announced discounted rates on home loans for consumers with a CIBIL Score above 750. Such preferential treatment will be soon be adopted by other lenders and will be applicable to loans from different segments. In addition to loan and credit card, your CIBIL score acts an important measure when you apply for certain jobs. Although not all the time, but some companies look for candidates who have displayed financially disciplined behaviour over a period of time.

What are the factors determining your CIBIL score?

  • Repayment history: This is one of the most important factor that affect your CIBIL score. Your repayment history contributes to 35% of the total CIBIL score. Making all your EMI and utility bill payments on time is extremely important. A consistent payment record works wonders for your CIBIL score. Delaying or missing payments have a negative effect on your credit score. If you do not have a good repayment history, banks and NBFCs will consider you are a high risk of defaulting payments.
  • Length of credit history: Age of the credit history suggests the number of years that have passed since you opened your first credit account. When you have a good credit history, it helps banks and NBFCs take a sound decision about offering you credit. They need to make sure that you have a good experience of handling credit. The age of your credit history accounts for 15% of your total credit score.
  • Type of the debt: The type of your debt accounts for 10% of your total credit score. There are two types of debts – secured and unsecured. A good balance of mixed credit helps you boost your credit score. If you don’t have a credit history, you can get a secured credit card against your fixed deposit. It works like a normal credit card and helps you in starting your credit history. In order to have a good balance of credit, you can take home or a personal loan and use a credit card as well. Having a good balance of secured and unsecured loan indicates that you have a good experience in handling different credits.
  • Credit inquiries: If you check your CIBIL score multiple times, it will not have a negative impact on your CIBIL score. An inquiry made by an individual regarding their CIBIL score is called a soft inquiry and it is harmless. Each time you inquire about a loan or credit card, an inquiry is recorded on your credit report. Making too many requests for credit suggests that you are credit hungry. Credit inquiries account for 10% of your total CIBIL score.
  • Amount of the debt: After your credit repayment behaviour, the total amount of debt plays an important role in your total CIBIL score. It accounts for 30% of the total CIBIL score. One of the main reasons to check and monitor your CIBIL score is that it helps you be aware of your current status of wealth. Make sure that you take only that amount of credit that you can repay without any hassle. In order to maintain a good credit score, you should ensure that your are maintaining   a low credit usage ratio. The credit utilisation is the amount you spend on your credit card with respect to your credit card limit. Experts usually suggest that you should ideally use 30%-40% of your credit card limit. Having higher debt can bring down your credit score

How to Check Your CIBIL score

It is very easy to check your CIBIL score. First up, you have to head to the CIBIL website and follow the steps like filling out your personal details. Next up, you have to pay Rs.550 and authenticate your identity. After completing your authentication, you will get you CIBIL score via email on the same day.

Does checking your score brings it down?

This is one of the most common myths related to CIBIL score. Checking your own CIBIL score does not bring it down. When you request for your own credit report from CIBIL, it is called a soft inquiry and it does not have any effect on your CIBIL score. Instead, when a lender inquires about your CIBIL score, it is considered a hard inquiry. Multiple hard inquiries have a negative impact on your CIBIL score. If you make too many loan applications, it may lead to hard inquiries that will bring your down your CIBIL score.

How often should you check your CIBIL score?

Ideally, it is a good habit to check your CIBIL score at least once every year. You should take a look at your CIBIL score at least every 6 months before applying for a loan. Another benefit of keeping a tab on your CIBIL score is to ensure it is error-free.

How to improve your CIBIL score?

  • Pay bills on time: In order to prove that you can manage your debt efficiently, make sure you pay your bills and EMIs on time. Avoid late payments and pay all your pending dues even if it is late.
  • Increase your credit limit: Request your credit card issuer to increase your credit limit. A credit limit is a total amount you can borrow through the card.
  • Limit your credit usage: Maintain discipline when it comes to credit card usage. Make sure you are not exhausting your whole credit limit and using less than 30%-40% of your card limit. Until your credit score reaches above 750, it is advised to not spend over 50% of your credit card limit.
  • Don’t close old accounts: Avoid closing old credit card accounts that have a decent credit history as it will adversely affect your credit score. It is advised to keep all your accounts open as it will help you in building a healthy credit history.

All the aforementioned factors will help you maintain a good credit score.

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Deepti here and I work as a freelancer, Blogger and specialise in compiling blog posts on the topics related to financial products like Credit Score, Credit Report, CIBIL Score, CIBIL Report, Equifax, Fuel Resource such as Petrol and Diesel and so on.

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