A credit score is the key factor that is responsible for building or breaking the trust of the lender when you apply for a loan. CIBIL, a part of TransUnion, is one of the RBI-approved credit rating agencies that are responsible for generating credit scores of individuals and businesses based on the data provided by the banks and lending institutions.
The CIBIL score gives you access to credit products, such as loans and credit cards. While a good CIBIL score provides easy access to credit, a low CIBIL score can make it difficult to access credit in times of need.
But, what is a good CIBIL score? Here is everything you need to know about a good CIBIL score.
Credit Information Company (CIC) has updated the criteria for scoring the borrowers and cardholders. There can be a sharp change in your credit score due to this change; for example, a score of 724 is now equivalent to 701.
The sole reason for the drop is that CIBIL has started to consider credit history for the past 36 months, instead of 24 months, to score customers. On the other hand, the new algorithm provides a score to individuals with a credit history of fewer than six months, unlike the previous algorithm.
The sole reason to update the scoring algorithm is to watch over borrower’s behaviour for a longer time to get a comprehensive picture of their credit behaviour. Note that the drop in CIBIL score will not negatively affect customers as banks and lending institutions are instructed to update their lending guidelines accordingly.
What is a Good CIBIL Score?
A good CIBIL score is a CIBIL score between 700 and 900. A good CIBIL score will be followed by many benefits such as quicker approval, a low-interest rate on the credit facility, a higher loan amount, a longer repayment period, and more. Furthermore, multiple lenders will be willing to approve your loan so that you can make a choice about the lender you wish to borrow money from.
What is a Good CIBIL Score for Loans?
A good CIBIL score for loans remains the same as that for any other purpose, i.e. any score between 700 and 900. A good score ensures a higher chance of your loan application getting approved.
No matter if it is a personal loan, car loan, or home loan you are looking for, a score above 700 is favourable. You can get a good deal with a lower interest rate, longer repayment period, higher loan amount, and more with a good CIBIL score.
In addition, such a score will lead to a quicker and easier documentation process. When it comes to a home loan, you can expect up to 80% of the total cost of the property if you have a CIBIL score between 700 and 900.
However, such standards cannot be set in the case of a personal loan as it is an unsecured loan. The loan amount may vary based on the purpose you quote for the loan and the score.
In the case of a car loan, there is no specific score that qualifies you. It is recommended to have a score above 700 to stay confident while applying for a car loan.
Factors Affecting your CIBIL Score
Though you are unaware of the effects of your actions, you may still be contributing to your credit score getting reduced. Here is a list of few actions that directly contribute to lowering your credit score:
Late Payment
Even a single delayed payment/payments made after the due date can impact your credit score. Sometimes, you tend to ignore the payment and use the money for other emergency reasons. However, this delay in payments can make you look like an irresponsible person when it comes to handling finances and contributing to a reduction in the score.
High Utilisation of Credit Limit
Lenders set a credit limit for every consumer after considering his income and the debt-service ratio. The credit limit says how much money he can spend on repayments after considering the other commitments he has.
If you utilise more than 50% of your credit limit on a regular basis, your credit score can be at stake. It shows that you are not good at managing finances and expenditure. To keep up with a good credit score, you must make sure to keep your expenses within 50% of your credit limit.
Multiple Credit Applications
You may have an emergency requirement for cash and have applied for a credit facility with multiple lenders within a short span of time. This will portray you as a person who is desperate for money.
When each of these lenders sends an enquiry request to credit rating agencies, such enquiries get recorded in your credit report leading to a lowering of your score. Multiple applications and enquiries mean you are hungry for credit; it also means you may not be able to repay if a loan is granted.
According to the latest scoring algorithm, the long-term trend of outstanding balances, the ratio of repayment to the outstanding balance, transaction history on credit cards, and the number of accounts opened and closed during the period are a few new factors that are considered to arrive at the CIBIL score.
An aspiring applicant must first get access to their credit report and check if they have a good chance of getting the credit facility. If the score is low, try and improve the score before you apply for credit with a lender. Avoid the above scenarios to keep up your score.
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