In this blog, we will discuss, what is a CIBIL score, how can you improve it and what can be considered as a good CIBIL score for availing of a loan?
Are you interested in getting to know more about the same? Then, please read the further information –
If you want to avail of a personal loan, a home loan, a car loan, or any other different type of loan, it is of utmost importance that you have a clear and proper understanding of your credit history.
Credit history refers to the ability to pay off your loans as per the specified time decided by your lender, which might be a bank or a financial institution. A good symbol of the credit history that will be considered by the banks or the financial institutions while granting a personal loan, a home loan, or a car loan to you, will be a good CIBIL Score.
WHAT IS A CIBIL SCORE?
CIBIL Score is a numerical reflection of your credit history and your creditworthiness. It is a factor that is considered by the banks as well as the financial institutions while granting you any type of loan.
It is a three-digit number that helps in reflecting whether you have paid your loans as per the specified time schedule given to you, by the banks or the financial institutions.
It takes into consideration the payment pattern for all the different types of loans availed by you, from different banks and financial institutions as well.
WHAT IS A GOOD CIBIL SCORE TO GET A LOAN?
Having a good CIBIL score is of utmost importance as it can help you avail of the loans easily and without any difficulties. You need to make sure that your CIBIL score falls within the range of 750 and 900. If it falls within this range, it is considered to be a good CIBIL score and this can help you in availing of a loan or a credit card easily.
HOW TO IMPROVE THE CIBIL SCORE?
If you have a CIBIL score of less than 750, check out some of the following ways which can help you to improve it in a proper and systematic manner:
1. Paying Off your Existing EMIs as per the Repayment Schedule :
It is very important to note that you should decide to choose to go for a longer tenure while availing of any type of loan.
This is mainly because, having a longer tenure for a loan will in turn lead to the payment of a low amount of the monthly instalments on the loans and in turn, help in keeping a close check on the savings as well.
2. Not having Too many Loans at One Particular Period of Time :
It is very necessary to understand that you should not avail of too many loans at any given point in time. If you really need to avail of another loan then please see to it that you keep a gap of at least 18 to 24 months between both of the loans.
This gap needs to be taken so that your CIBIL score does not get impacted and does not decrease because of the fact that you have availed of the two loans simultaneously.
3. Having a Good Credit History :
Having a good credit history will depend upon the following factors :
- You need to have a proper combination of both types of credit, long term as well as short term.
- You need to have the right balance between secured as well as unsecured loans. Secured loans include home loans, car loans, etc. On the other hand, unsecured loans include personal loans, credit card dues etc.
4. Not Applying for Loans Frequently :
You need to keep in mind that it is of utmost importance that you do not keep on applying for loans very often. This is because the banks and the financial institutions keep a close check on every enquiry of loan which you make. If you keep on applying for a loan or a credit card too many times, this can lead to a decrease in your score.
5. Not Utilizing your Full Credit Limit :
It is beneficial for you to know that you should not use your credit limit completely. If you use only up to 30% of your credit limit, that can help in keeping your CIBIL score on track. This can also help in increasing your CIBIL score.
6. Keeping a Close Check on the Joint Applicant :
You need to make sure that if your loan has a joint applicant then he or she is paying off their part of the loan in a timely and systematic manner. This is very important because if he or she does not pay their part of the loan as per the stipulated repayment period, this can lead to a negative impact on your CIBIL score as well.
7. Not Choosing Debt Settlement for the Current Loans :
It is of utmost importance that you do not choose the option of debt settlement for your current and existing loans. Debt settlement refers to negotiating with the banks or the financial institutions for paying off the current loans at a low rate of interest.
If the banks or the financial institutions agree to come to this type of settlement, this might lead to a reduction in your CIBIL score.
HOW TO CALCULATE THE CIBIL SCORE?
The CIBIL score is calculated by the TransUnion CIBIL credit bureau. They take into account a bunch of different factors for calculating the CIBIL score.
The CIBIL score consists of four main factors and all of these factors have a weighting factor attached to them :
1. History of Payment (30%) :
History of payment is one of the most important factors which can have an impact on your CIBIL score in a positive or a negative manner. If you have paid the EMIs for your loans and the credit card dues as per the stipulated repayment period, this can not only have a positive impact on your CIBIL score but can also help in increasing your CIBIL score substantially.
2. Exposure to Credit (25%) :
Exposure towards credit which is also referred to as the credit utilization ratio is the second most important factor which needs to be considered while calculating the CIBIL score. Credit utilization ratio refers to the portion of credit which has been used by you from your prescribed credit limit. You should ideally use only around 30% of your prescribed credit limit.
3. Type and Duration of Credit (25%) :
The repayment period for your loans is a very important factor that needs to be considered while calculating the CIBIL score. If you have paid your loan as per your stipulated repayment period, this can have a positive impact on your CIBIL score.
The type of loans you avail of is also taken into consideration while calculating the CIBIL score. You need to have a proper balance of both secured as well as unsecured loans.
4. Number of Credit Applications (20%) :
This factor takes into consideration the number of times you have applied for a loan or for a credit card. If you keep on applying for a loan or a credit card every now and then, this may have an adverse effect on your CIBIL score.
Thus, having a high CIBIL score will be of utmost importance, as it can not only help you in availing credit easily but it can also help you for availing a good deal on credit cards or for requesting a lower interest rate on the loans.
Must Read – What is CIBIL score? – FFC episode 36
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