1. Difference between Credit and CIBIL score
a. Credit score
A Credit Score is a three-digit number that sheds light on how you handle credit. In adult lives, it is normal to do financial transactions on a regular basis. And availing credit when required for various purposes is one of them. It is also like a progress report for your credit behavior. Consistently good credit conduct fetches you a higher score (out of 900) and any slip up will result in a lower score. It will be difficult for you to secure a loan of any kind, especially unsecured ones like personal loans and credit cards with a low score. In case, your application gets approved, it will be at a higher interest rate than usual.
b. CIBIL Score
People often think credit score and CIBIL score to be synonymous. However, it is not. India has 4 credit rating agencies to assess your credit score, and TransUnion CIBIL is the premier one among them. It has affiliations with almost every bank, gauging creditworthiness of millions of individuals and enterprises.
A high score from them not only denotes your excellent financial discipline but also your integrity. Every time you apply for a loan or a credit card, your recent score (last 6 months) is checked. Generally, any score above 700 is considered good, though some banks keep the bar high and some do not mind lowering the yardstick.
2. How to get your CIBIL Score
It is easy to obtain your recent CIBIL Score from the website itself. Relying on financial institutes is not a good idea as each enquiry from your side can result in a dip in your score.
Step 1: Select any of the plans below
1-month Subscription – Rs. 550
6-monthly Subscription – Rs. 800
1-year Subscription – Rs. 1200
Step 2: Type in your personal info as requested in the online form
Step 3: Enter the captcha shown in the box and accept terms and conditions, before proceeding towards the payment page
After making the payment and authenticating your account, you will be sent the credit report to your email id in 24 hours. You can also send the print-out of your duly filled application form to the company directly to receive the score by post
3. Factors that affect CIBIL Score
a. Repayment history
Past behavior is an indicator of future behavior. Every time you avail loan or credit, the lender is dutybound to report it to the CIBIL. The bank take a note of whether you repay debts on time. If you make an effort to repay in advance, it is seen as a positive sign. This shows that you can be trusted to repay the amount you owe.
b. Drastic increase in credit
As an earning person, you may have a certain credit limit (whether it is for a loan or credit card). However, using them to the brim indicates credit hungry behavior and banks see them as red flags. If you maintain a certain credit level all months, but suddenly seen spending significantly more, it can result in a reduced score.
c. Debt to income ratio (DTI)
Generally, lenders don’t encourage people to take more debts than roughly 40% of their income. So, DTI is used to gauge a loan applicant’s ability to repay based on his/her income. It is a good metric to inculcate financial discipline as well as to ensure that you can repay your future EMIs without feeling burdened.
d. Numerous loans
Having many loans in your name will always be a matter of concern to lenders – like a home loan, a couple of personal loans, a vehicle loan and credit card(s) on top of them. It is always better to close one before availing the next. Focus on closing the smaller loans as soon as possible – it will at least reduce the number.
4. Good Score and bad Score
||What it means
|850 – 900
||Shows that you have never defaulted even once and is an excellent score
|750 – 850
||It is a fact that 79% of loans sanctioned are for people with 750+ score. Scores above 800 are considered high and you can easily ask for a lower rate on personal loans and credit cards
|700 – 750
||A good score for secured loans. But for unsecured credit, the bank might investigate further (like social score) or impose slightly higher rates
|500 – 700
||This shows that you have delayed or defaulted a few times in the past. Personal loans can be difficult to obtain from a bank. A private financier may levy hefty interest
|300 – 500
||Such poor score indicates too many discrepancies in past loan repayments to ignore. Unless you work on credit repair or improvements, it will be impossible for you to get a loan from any bank in the country
5. Why CIBIL Score matters
CIBIL Score is like a progress card report for your financial integrity. It is an indicator that tells a lender that ‘yes, you can give the loan’ or ‘oh no, it doesn’t look like he/she will repay’.Listed below are reasons why you should always keep your CIBIL Score high.
a. For secured loan approval
There is a misconception that it is easy to avail secured finances like home loans, auto loans etc. because you providing the bank with some kind of security. However, your past credit behavior will be looked into by the lender. This is how they decide the upper limit and the interest rate. With a questionable CIBIL Score, the overall process can get difficult.
b. Quicker approval of unsecured loans
A clean chit from TransUnion CIBIL when it comes to credit score is of utmost importance when you apply for loans without any security. Like personal loans, for instance. For a borrower with high CIBIL Score (say, 750+), it is easier to get it sanctioned. If your score is above 800, you might even get a higher amount than normally given by a bank.
c. More bargaining power on interest rates
Are you aware that interest rates vary for different loans at different banks? Some people end up getting a better deal than others. A higher CIBIL Score enables you to bargain with banks for a better rate or deal. You can easily compare the offers from lenders and authoritatively negotiate as creditworthy customers are assets for any financial institution.
d. A lesser premium for insurance
Insurance is another financial instrument that rides mainly on trust and credibility, whether it is life cover, medical insurance or others. Your repayment history, claims history and general handling of debts and dues – all these are tracked carefully by the insurance companies. This helps them determine if you can enjoy a lower premium compared to others policyholders with low credit score.
e. Chance and choice to pick the best credit card
Credit cards, if used smartly, can give you a host of benefits. Though they allow a definite zero interest period, the interest rates can shoot up drastically if you delay or miss a payment. With a better-than-good CIBIL Score, credit card companies will vie with one another to give you the best possible deal. Otherwise, you can end up with a credit card with an impossibly high-interest rate or a rejection.
6. How to Improve CIBIL Score
One bad credit score is not the end of the world. You can still salvage your score by doing the following. But mind you, it will take at least 6 months, if not more, for the ‘improvements’ to reflect in your credit report.
a. Avail your recent credit report
This will help you understand your current position and where you slipped. For instance, if it is a couple of delayed payments responsible for your low score, make sure that it doesn’t happen again. It will also help you to correct errors if any or keep a target (it has to be at least 6 months).
b. Never postpone payments
The number of procrastinators is on the rise, thanks to the dramatic advance in technology. However, CIBIL doesn’t buy this excuse and you have to pay your dues and EMIs on time. Or else, the score will fall, period. It is better to automate your payments in the initial week of payday to avoid accidental delays.
c. Have a diverse credit-folio
This will act as a proof to the lender that you are adept at handling different kinds of credit. Having a blend of secured loans (house loan, car loan) and unsecured loans (personal loan, credit card) can do that. A higher leaning towards unsecured loans is not looked upon favorably.
d. Don’t have unused credit cards
It is never a good idea to keep one or more credit cards idle. If you are scared of maximizing limit, just use it for grocery shopping or fuel purchase and repay it at the beginning of next month. If you absolutely do not want to use a certain credit card, just close it.
e. Smart handling of debts
If it is seen that you are handling your debts smartly, the score can improve. For instance, we all know credit card works on revolving credit and can get unmanageable if we are not careful. In such case, closing off the credit card dues with a personal loan is a smart move. This means you pay less interest and have the ability to solve a problem quickly.
f. No maxing out the credit
Just because your credit card allows you to borrow up to 2 lakhs doesn’t mean that you do that. Please make sure that you don’t upset the balance of debt-to-income ratio.
g. Not prolonging tenures
The vintage of the loan or credit is another factor that can impact your score. Say, if you have taken a personal loan with a tenure of 3 years, and have increased the tenure midway for a smaller EMI, it can cause your CIBIL Score to drop.
7. About TransUnion CIBIL Credit Agency
TransUnion CIBIL is a credit bureau or credit information company, incepted in 2000, the first of its kinds in India. We can logically conclude that the advent of credit cards in the country has contributed to its foundation. Based in Mumbai, it maintains data of majority of bank and financier consumers in the country. They are known for their accuracy and transparency.