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How a good CIBIL score can help you in the financial market

When you look for a product in the financial market, your CIBIL score determines whether you will be eligible for it. Your CIBIL score is an evaluation of your credit history and behaviour, timeliness of debt repayments, number of products applied for in the financial market, number of existing products and rejections in recent history, and several other factors.

Your CIBIL score represents your credit health and is an assessment of your creditworthiness. These parameters enable lenders to evaluate the probability of debt retrieval within the pre-determined time. For instance, withdrawal of cash against your credit card, which gets reflected through your CIBIL report and PAN card, speaks about your financial instability. It makes your debt hungry behaviour evident to your prospective lenders, raising a red flag for them. Only a good CIBIL score can make you eligible for products and competitive services in the financial market, and that too on favourable terms and conditions. Now that we’ve discussed the significance of CIBIL score, let’s talk about when your score is interpreted as a good CIBIL score by lenders. The 3-digit dynamic CIBIL score is measured on a scale between 300 and 900, with 300 being the lowest score and 900 being the highest.

The minimum CIBIL score required for availing products and services in the financial market is 750. This makes you eligible for quick credit application approvals and hassle-free services like better interest rates and higher loan amounts. The higher is your CIBIL score, the greater will be your scope for credit eligibility. Contrary to the popular opinion that a lack of credit history improves the chances of credit eligibility, it has quite the opposite results. Lenders check the past financial behaviour of applicants to decide on their debt eligibility, and a lack of loan applications or credit card transactions make it difficult for them to assess their credit behaviour, leading to rejections for credit.

It’s highly recommended that you check your CIBIL score every few months and especially before applying for credit to prevent your application from getting rejected, which will automatically affect your score. However, make sure that you don’t track it too frequently as that is interpreted as credit hungriness. You can login to your bank’s internet banking account and opt for a free first-time credit report or opt for a monthly or quarterly or yearly access at a charge.

Importance of a good CIBIL score in the financial market

  • Seamless loan application approval : A good CIBIL score is your opportunity for loan application approval. This is especially applicable on unsecured loans like credit card, personal loans, etc.
  • Speedy loan approvals : Not just loan application approval, you get speedy loans because the lender is comparatively more convinced of the prospects of loan retrieval, as reflected from your existing CIBIL score. You might even receive a pre-approved loan from your lender, simply based on your good CIBIL score.
  • High credit card eligibility : A CIBIL score greater than 750 also enhances your chances of getting a credit card. You can receive an instant online credit card based on your CIBIL score, which can be mapped through your PAN card. The lower the score, the lesser will be your chances of receiving an approval on your credit card application. Even if you get a credit card with a low CIBIL score, it will only be on unfavourable terms like low credit limit, etc.
  • Access to premium credit card : A high CIBIL score does not only lead to express approval of credit card applications, it also makes you eligible for premium credit card. When you have a good CIBIL score, either you will be offered a premium card or an upgrade will be made available to you, or you can ask for an upgrade yourself.
  • Bargain on credit limit : The higher your income, the higher will be your credit limit. However, banks also offer you a higher credit limit when your score is over 750. This places you in a position where you can bargain for a greater credit limit based on your healthy CIBIL score. This proves to be helpful when you want a higher credit limits on car loans or additional home loans.
  • Negotiate on interest rate : Not just bargaining on your credit limit, you can also negotiate with your lender to reduce your interest rate on your approved loan application. Lenders usually show more interest in offering loans to applicants with a healthy CIBIL score to retain creditworthy customers.
  • Flexible debt repayment structure : A good CIBIL score takes you a few steps further towards being eligible for special debt repayment structures. This implies that lenders may go the extra mile to make them more flexible for you. They may agree to customise a loan by reducing the loan amount and instead increase the loan tenure if that is more convenient for you.
  • Flexible loan term : Yet another benefit that you can negotiate for with a good CIBIL score is to extend the tenure of your approved loan. Such requests from applicants with low CIBIL score will not be considered.
  • Eligible for interest moratorium : An interest moratorium implies that you can avail another loan from the same bank where you already have an existing loan. For instance, you have a current loan at a bank from where you can apply for an additional loan for repairing the car or upgrading the car interiors. With a good CIBIL score, you may become eligible for a moratorium of a certain period of time, making you eligible for paying the EMI instalments after that pre-determined period. An applicant with a low CIBIL score would not be eligible for such a moratorium.
  • Add-on benefits for visa applications : Finally, good credit history can also add value to your visa applications. Submitting minute details of your income and tax records are mandatory when you apply for visa to travel to countries like the UK and US. A good CIBIL score will help you get an encouraging letter from the bank that will boost your visa application.

FAQs on How a Good CIBIL Score Can Help You in the Financial Market

Why is my CIBIL score important in getting a loan or credit card?

Evaluating your CIBIL is an essential part of assessing your eligibility for loan or credit card. After you apply for a loan or credit card, the concerned lender analyses your CIBIL Score and Report. The minimum CIBIL score required for a quick and hassle-free loan application process is 750 on a scale between 300 and 900. The lower your CIBIL score, the lesser will be your chances of being eligible for credit from lenders. A low CIBIL score may make lenders not even consider a loan application. Even if lenders offer a loan to an applicant with a low CIBIL score, it will be against collateral or other unfavourable terms and conditions. The CIBIL score is a primary criterion to assess your credit eligibility, but not the only measurement for processing your loan if you have a high score. Lenders look for other parameters to determine your creditworthiness like current income, number of existing loans, etc.

How to increase my CIBIL score?

Here are some ways in which you can improve your CIBIL score.

  • Timely repayment of debts: Late payments are a proof of financial instability, raising a red flag to lenders and leading to rejections of loans and credit card applications.
  • Don’t spend beyond 30% to 40% of your credit limit: The more your credit utilisation ratio, the more adverse will be the effect on your CIBIL score.
  • Opt for a healthy credit mix: Use a combination of secured loans like home loan, and unsecured loans like personal loan, credit card to boost your CIBIL score.
  • Opt for new credit rather than using a high credit utilisation ratio: If you are using credit beyond the recommended limit, you can opt for new credit. However, do it with caution as seeking excessive credit is a sign of credit hungriness.
  • Track your CIBIL report in regular intervals: Access your CIBIL report, which comprises of your CIBIL score, every few months to monitor repetitions and omission of information and the mention of fraudulent transactions in your credit history. This is especially relevant before you apply for a loan or a credit card. You should raise a CIBIL dispute and get the score rectified to improve your scope of loan and credit card eligibility.
  • **Don’t be a guarantor: When your joint accountholder misses payments, you are held equally responsible for it. This affects your CIBIL score too. You may also be asked to pay off the debts on behalf of the joint accountholder.

What are the factors, other than the CIBIL score, which lenders consider during loan approval procedure?

Some of the other factors that lenders consider while evaluating your eligibility for loan or credit card are your existing income, number of existing loans/credit cards, your ability to repay debt on new credit from the remaining balance of your income, etc. For instance, if your current income is INR 50,000 from which you pay INR 25,000 towards credit card bills and EMIs for loans, you may not be offered a loan. This is because you would require to make a living with the balance amount, making lenders question your ability to repay debt on new credit.

What are the disadvantages of being a guarantor?

When your joint accountholder misses payments, you too are held equally liable for the late debt repayments or defaults. This reduces your CIBIL score also. Besides, lenders may ask you to pay off the debts on behalf of your joint accountholder.

What is the ideal credit utilisation ratio on credit card to maintain a good CIBIL score?

The recommended credit utilisation ratio on credit card is considered to be a maximum of 40% of your total credit limit. Anything beyond this limit reduces your CIBIL score as it is viewed as financial stress.

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