CIBIL score is one of the foremost requirements while applying for a loan and credit card. It is important to know the meaning and impact of different ranges of CIBIL score as it determines your credit behaviour.
Meaning and impact of CIBIL score
Your CIBIL credit score represents your credit repayment behaviour and reflects your creditworthiness. The credit score is determined by various factors such as credit history, timeliness in loan repayment and credit card bills payment, frequency of loan application, loan rejection, and various other factors. It is a three-digit number which gives the lender an idea of your creditworthiness and financial stability. CIBIL score determines your ability to repay the loan on time. It helps them to assess the risk involved in offering credit card or loan and evaluating whether the applications must be approved or not. A low CIBIL score not only minimises your chances of getting a loan and credit card, but also increases the rate of interest for the loan. On the other hand, a good credit score helps you get a loan application processed quickly.
Let’s Break down the credit score range
CIBIL, TransUnion Credit Information Bureau India Limited is India’s first credit rating agency that started analysing credit health. Your CIBIL score is estimated through a complex statistical calculation based on your credit history received from banks and other financial institutions. The CIBIL score is scaled between 300 and 900, with 300 being the lowest and 900 being on the highest side. The minimum CIBIL score that you need for a quick loan approval is 750.
Let's understand what is bad, average, good and an excellent rating in CIBIL scoreboard.
Excellent CIBIL Score (Between 750 and 900): The score between 750 and 900 is considered to be an excellent CIBIL score by lenders. CIBIL score under this bracket fetches highest chances of you getting a loan. Moreover, the loan approval process is usually quick and hassle-free with this score range. An excellent CIBIL score reflects your positivity on the creditworthiness front. It also gives lenders a certain level of confidence about timely loan repayment. A high credit score gives you the advantage to negotiate on the rate of interest and the loan amount.
Good CIBIL score (Between 700 and 749): A CIBIL score under this range is referred to as a "Good" score. Borrowers with a CIBIL score in this range have a reasonably good chance of getting their loan application approved by the lender. However, despite a good CIBIL score, it is not as risk-free as the higher CIBIL score of 750 and above is. Therefore, the chances of loan approval are comparatively lower. You can improve your credit score to take interest rate benefit and hassle-free loan approval process.
Average CIBIL score (650 and 699): CIBIL score under this range is considered to be an average score. It indicates that the borrower is neither too good nor too bad with his credit history. However, an average CIBIL rating can be improved through better credit behaviour to lower the risk of loan rejection. The chances of getting a loan with favourable terms are less with a credit score in this range. The lender may sanction a loan, but with a high-interest rate and no additional benefits. Paying your loan EMIs and credit card bills on time may help you to prevent your CIBIL score from reducing further.
Poor CIBIL score (Between 550 and 649): The chances of getting a loan with a CIBIL score in this range is almost nil as it accompanied by high risk. Such score indicates constant defaults on loan repayments and credit card bill repayments. This is also interpreted as your financial instability as a borrower and minimises lender’s trust in receiving the repayments within the due date. Some lenders may ask you for a guarantee to reduce the default risk. If you are unable to repay the loan, lenders can depend on the guarantor for the debt repayment. With this score, it is advisable to stop applying for loan or credit card and stop using the credit card until you repay the entire outstanding amount to improve your CIBIL score.
Bad CIBIL score (550 and below): A CIBIL score below 500 is considered to be a very bad score, and the chances are zero of securing a loan. CIBIL score below this range is an indication of poor credit health. Chances are the highest of getting the loan application rejected by lenders. Apart from a small amount of loan with a higher interest rate, you may get a loan only against collateral like gold, FD, assets and shares. You can improve your CIBIL score after years of responsible credit repayment behaviour.
Tips to improve CIBIL score
A bad CIBIL score can be improved over time. You need to understand the factors that impact your CIBIL score and take continuous measures to improve it. Take a look at such tips that will help you improve your CIBIL score.
- Set reminders for payments and use a credit card with discipline.
- When you are borrowing a loan, try opting for a longer-term for repayment. This will ensure that your monthly EMI is low, and so you can pay EMIs on time. When you don't skip, delay or default paying EMIs, your credit score will improve automatically.
- Make a payment of the entire amount due against your credit card within the due date rather than paying the minimum due. Banks levy a hefty interest rate when the remaining amount is pending in the next month. You can also authorise your bank to auto-debit the outstanding amount on your credit card by giving standing instructions.
- Avoid withdrawing money against your credit card. Such a transaction is a sign of poor credit health.
- Before applying for a credit card or a loan, check your CIBIL score and report if there are any inaccuracies, omissions or fraudulent transactions against your name. This unfairly affects your credit score leading to loan rejections.
- Avoid being a loan guarantor. If the borrower defaults on loan repayment, it negatively affects your CIBIL score. It also authorises the lender to ask you to repay the debt on behalf of the borrower. Approval cut-off ranges of CIBIL score may vary from one lender to another. However, knowing your credit score can be helpful. When you know your credit score, you can quickly determine whether you are likely to qualify for a loan or not.