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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.
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.
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.