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Meaning and Impact of CIBIL Score Range

Your CIBIL score represents your credit repayment behaviour and reflects your credit health. It is determined by various factors like credit history, timeliness of loan and credit card bill repayments, existing loan applications and rejections, frequency of loan applications, and various other factors. The three-digit number gives lenders an idea of your creditworthiness and your credit financial stability, which in turn determines your ability to repay debts on time. This helps them assess the risks involved in offering loans and credit cards to borrowers, evaluate the chances of retrieval of debts and decide on whether to approve loan and credit card applications. A low score not only minimises your chances of loan and credit card eligibility, but loans are offered on a heavy rate of interest or on a low loan amount, and other unfavourable terms and conditions. On the other hand, a good CIBIL score enables speedy loan approvals and other benefits.

Information on CIBIL score

TransUnion Credit Information Bureau India Ltd., or CIBIL in short, is India’s first credit rating agency, analyses your credit health. Your CIBIL score is determined through a complex statistical calculation based on the data about your credit history received from banks and financial institutions. This data also gets reflected in the CIR or Credit Information Report of every borrower. CIBIL is governed by Credit Information Companies (Regulation) Act, 2005 and has been authorised by the RBI (Reserve Bank of India). CIBIL scores are measured on a scale between 300 and 900, with 900 being the highest and 300 indicating the lowest. The minimum CIBIL score that a borrower usually needs for a quick loan approval process is 750.

Impact of CIBIL score

Let’s have a look at good, bad and middling CIBIL scores and how they affect loan approvals.

  • CIBIL score between 750 and 900 : With an excellent CIBIL score within this bracket, the chances of securing a loan is the highest. Further, the loan approval procedure is usually quick and hassle-free. A score within this range reflects positively on the creditworthiness of the borrower, which makes lenders interpret them as high quality. It also gives lenders a certain degree of assurance about timely retrieval of the loan amount, often enabling borrowers to negotiate on the loan amount and rate of interest, and opt for the most prospective one.
  • CIBIL score between 700 and 749 : Referred to as a ‘good’ CIBIL score, most people’s credit scores belong to this bracket. Borrowers with a score in this range have a fairly good chance of getting an approval on their loan application. However, despite a dependable CIBIL score, it is not as risk-free as the higher credit score bracket of 750 and above. Hence, the chances of getting loan approvals are comparatively lesser. Borrowers have to improve their CIBIL score to enhance their chances of loan approval.
  • CIBIL score between 650 and 699 : CIBIL scores in this range are considered to be average credit scores, indicating that borrowers neither been too good nor too bad with their debt repayments. However, there is scope for improvement through better credit behaviour to lower the risk of loan rejections, the scope for which is quite high. The probability of getting a loan with favourable terms and conditions is low with such middling CIBIL scores in this bracket, that is, high interest rate, high premium or no additional benefits. Paying your loan instalments and credit card bills strictly within the due date will prevent your CIBIL score from decreasing further.
  • CIBIL score between 550 and 649 : The chances of securing a loan with a CIBIL score within this bracket are nil because they are accompanied with high risks for lenders. Such scores are a proof of consistent defaults on credit card bill payments and loan repayments, which is interpreted as the borrower’s financial instability. This minimises their trust towards the borrower in receiving the repayments within the stipulated due date. Some lenders may offer a loan by asking for a guarantor to reduce the risks. In case of a situation in which the borrower is unable to clear the debts, lenders can depend on the guarantor for the necessary repayments. Borrowers have to stop applying for loans or credit cards and stop using credit cards till they have repaid the entire outstanding amount pending against them to improve their CIBIL scores.
  • CIBIL scores of 550 and below : A CIBIL score below 550, considered to be a bad score by all lenders, restricts the chances of securing a loan as it is indicative of poor credit health. There are high chances of getting the loan rejected. Apart from small amount and being offered a loan on high rate of interest, the borrower may have to opt for a loan against collaterals like FDs, gold loan, shares and assets. Considered to be highly negative, the chances of securing a loan with a CIBIL score below 550 is very narrow as the score can be improved only after years of responsible credit repayment behaviour.

Steps to improve CIBIL score

Late payment of debts on loans and credit cards minimise your CIBIL scores, and that negatively affects your prospects of getting a loan or credit card. If you have a low CIBIL score and would like to enhance it further, here are some tips on how you can improve it:

  • Pay the entire amount due against your credit card within the due date rather than paying the minimum amount due. This is because, when the remaining balance is pending against your name in the next month, banks levy a heavy rate of interest and this affects your CIBIL score.
  • It is the same for repayments of loan instalments as well. Make sure that you pay the monthly instalments within the pre-determined date to improve your CIBIL score.
  • Avoid transacting with your credit card till you have repaid the entire outstanding amount, so that your CIBIL score does not fall further.
  • If you are in the habit of missing the due dates for repayment of loans and credit card bills, you can authorise your bank to auto-debit the outstanding amount from your account by giving them standing instructions. This date for the auto-debit is decided by you as per your convenience. Therefore, when you decide on the date, make sure that you maintain enough or the necessary balance in your registered account on the selected date. Banks charge a heavy fine on every unsuccessful auto-debit.
  • Avoid withdrawing cash against your credit card because such transactions are a proof of a poor credit health and financial constraints, cautioning lenders against approving loan and credit card applications.
  • Before you apply for a loan or credit card, make sure that you check your CIBIL score and report for fraudulent transactions, and inaccuracies, omissions or repetitions about your transactions. This unfairly affects your CIBIL score, leading to loan rejections. Under such circumstances, you have to raise a CIBIL dispute and get it rectified before you apply for a loan or credit card.
  • Thoroughly read the loan offer document and get your doubts clarified before signing on the dotted line. This will make you well aware of the terms and conditions, leaving no scope for you to take steps that may bring down your CIBIL score.
  • Don’t be a loan guarantor. In case the borrower defaults on debt repayments, it affects your CIBIL score as well. It also authorises the relevant bank or financial institution to ask you to repay the loan on behalf of the borrower.

FAQs on Meaning and Impact of CIBIL Score Range

I have a CIBIL score of 692. Will it be difficult for me to get a loan?

A CIBIL score between 650 and 699 is interpreted as an average credit score. It indicates that the borrower has neither been too good nor too bad with the repayment of their debts. You need to improve your credit behaviour to reduce the risk of loan rejections, the chances of which are quite high. The scope of getting a loan with favourable terms and conditions is restricted to a score in this range. This means that even if a borrower secures a loan, it will be offered at a high rate of interest, high premium and/or no additional benefits. You need to keep a close watch on your debt repayments and pay them within the stipulated date, so that your CIBIL score does not fall further.

What can be the reasons behind a low CIBIL score?

  • Late or defaults on EMIs, loan instalments and credit card bills is one of the primary factors behind a low CIBIL score. This reflects on the financial instability of the borrower’s, making it risky for lenders to approve loan or credit card applications.
  • Maintain the recommended credit card utilisation ratio of 30% to 40% of the total credit card limit. Exhausting a higher percentage of the limit is interpreted as a financial instability of the borrower, minimising the CIBIL score.
  • Using too little of the available limit also prevents borrowers from achieving a good CIBIL score because of the lack of sufficient credit history for necessary evaluation.
  • If you have a recent history of quite a few loan or credit card rejections, take a break from applying further till your score has improved.
  • If a loan is nearing the end of its term, take some time after its closure before applying for another loan. This affects your CIBIL score as it reflects your inability to maintain liquidity.

Can withdrawing cash against my credit card affect CIBIL score?

Yes, withdrawing cash against your credit card adversely affects your credit score. This is because it reflects on your poor credit health and financial constraints. This is done to caution future lenders about the risks of offering credit to such borrowers.

One of my loan EMIs has been repeated twice in my CIBIL report. Can this be the reason behind the sudden dip in my CIBIL score?

Yes, repetitions and omissions of transactions can be the reason behind a sudden dip in your CIBIL score. You can raise a CIBIL dispute to get it rectified. Make sure that you have it corrected before applying for a loan or credit card to be eligible for a lower interest rate that is aligned with your credit history and behaviour.

I often miss my loan repayments because I forget the due date? Is there any way in which I can stop my CIBIL score from getting affected because of this?

You can give standing instructions to your bank to activate the auto-debit facility that will deduct the outstanding amount from your account on a certain date. You have the freedom to decide on this date as per your convenience. However, ensure that you maintain sufficient balance in your registered account on the date to enable the bank to complete the auto-debit process successfully. If the auto-debit process remains incomplete due to the lack of sufficient balance in your account, your banks will charge a heavy fine on every unsuccessful auto-debit.