At many occasions in life, you may need access to some extra finance to fulfil your short and long-term goals. While short term-goals may include purchasing a caror going on a vacation, long-term goals can be buying a home or marriage. A bank loan is an ideal funding option to address these goals. However, before lending an amount, any financial institutionwill look at certain parameters to gauge your creditworthiness. CIBIL Score play an crucial role among them. The term CIBIL stands for “Credit Information Bureau (India) Limited”. It is the first credit information company in India, established in August 2000. The company collects and maintains credit records of individuals as well as commercial entities. This includes borrowing and payments related to loans and credit cards. In short, CIBIL score determines your creditworthiness. It simply determines the rate of interest and loan amount for creditor.
Minimum CIBIL Score for Personal Loan
One ofthe India’s leading credit information companies, TransUnion CIBIL, incorporated in 2000, analyses the record of individuals and delivers a three-digit score, between 300 and 900, based on individual’s credit history. The higher the credit score is, the better are the chances of personal loan approval. A score of 750 and above is what is generally considered the ideal CIBIL score for loan approval.
Individual’s score plays acrucial role in financial journey and affects various aspects of lending.
Prediction of Your Creditworthiness
Your CIBIL score gives the first impression to your prospective lender about your creditworthiness. It tells them whether you can repay the loan on time or not. While a high score build a sense of confidence among lenders, a low score raises a red flag. Generally, a score of 750 and above is considered the ideal CIBIL score for loan approval. However, it will come with various terms and conditions attached.
Approval of Loan
The CIBIL score plays a crucial role in the time taken for loan approval. A high CIBIL score quicken the loan application process. Since a high score helps in assuring the trust of your potential lenders, they take minimum time in processing your application. Faster processing of your application ensures quick transfer of funds into bank account, which you can use to avail your needs.
Competitive Interest Rate
Before availing a personal loan, it is important to figure out the interest rates. With a high CIBIL score, you have a great chance of availing a loan at competitive rates of interest. It gives the power to negotiate with the lender. Some lenders may even waive off the processing and pre-payment charges. In fact, a low score tilts the scales in favour of the lender, when it comes to determining the interest rate.
Estimation of Loan Amount
The amount of loan you can get rests on CIBIL score. A high score entails a higher amount and a lower score entails a lower amount as loan. It also leads to minimum documentation and ensures a hassle-free borrowing process. The CIBIL score ranges between 300 to 900. The closer you are to 900, the better are the chances of your hustle free loan approval.
CIBIL scores play cucial role in getting a loan sanctioned. Lenders need to make sure that you are a credit worthy applicant who they can afford to lend or not. Nothing proves to be more reliable at early stage, than a good CIBIL score. An unsatisfactory CIBIL score always reduces your chances of getting the home loan without any hassles.
- Strong bargaining tool
A good CIBIL score can be used as a strong bargaining tool. If your credit score along with other eligibility parameters are strong (like age, income, credit history, repayment track, property norms etc.), then you can always use those factors to bargain on various fees and charges involved in loan approval process. In fact, No lender would like to lose a highly eligible customer with a good CIBIL score.
- Interest rates
All loan applicants try to avail loan at the lowest possible interest rate. A good CIBIL score will help you get the best possible interest rates and terms.
Disadvantage of low CIBIL Scores
Low CIBIL Scores may affect you financially. The following mentioned are some of the disadvantages of having a bad CIBILscore :-
1. Loan applications might be rejected:-
Banks and other Financial Institutionsconsider borrowers with low CIBIL Scores as high risk, which means they will avoidlending you the money you need.
2. high interest rates will be charged if application is approved:-
If somehow the loan application is approved, it will mostly end-up being stuck with a really high interest rate.
3. Starting your own business might be a Challenge:-
Many new businesses need the assistance of a bank loan to get started. With a low CIBIL score, banks will be less likely to approve your loan application, even if your business idea is a great one.
METHODS to Improve CIBIL Score
Pay your dues on time:
Missed an EMI? Delayed your Credit Card payment? Then pay more attention. You should set reminders for your payments and be disciplined with credit repayment. Your settlement of outstanding debt can have a considerable impact on your credit score. Payments delays in EMIs may not only make you pay the penalty charges but will also lower your credit score. So if you are looking to improve CIBIL score, you should pay your dues on time and rank up a good score. Use service that let you automate bill payment so that you don’t have to worry about missing deadlines.
Use credit prudently.
You have avoid taking too much debts at one time. The number of loans you apply for, during a fixed time period should be minimal. To keep your credit score from crashing, repay one loan and then take another. If you opt for multiple loans at the same time, it will be evident that you are in an unforgiving cycle with insufficient funds. As a result, your credit score will decrease further. How to improve CIBIL score immediately? When you take a loan, repay it successfully, it will give your credit score a boost.
Maintain a healthy credit mix:
It is better to have a right combination of secured loans (such as Home Loan, Auto Loan) and unsecured loans (such as Personal loans, Credit Cards) of a long and short tenure to build a good credit score. Too many unsecured loans may be viewed negatively.
Apply for new credit within your limit:
You should not give the impression that you are continuously in need of credit. Only apply for new credit if you need it and can repay it as opposed to wanting it. Too much debt can affect your credit score also.
Monitor your joint accounts regular, guaranteed and co-signed
In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed your payments. Your joint holder’s person (or the guaranteed individual) negligence could affect that your ability to access your credit also. It always recommended that to avoid becoming a joint account holder or a guarantor for loan.
Review your credit history frequently throughout the year:
How to improve CIBIL score? Monitor your CIBIL score and Report regularly to check for any inconsistencies. At times, CIBIL may make mistakes when it comes to updating your records, incorporating incorrect information against your report and delay in recording details. Sometimes a loan you may have repaid may not have been updated on the credit report, which could have a negative impact for you. If you notice such errors, get them rectified instantly.
Build up a good history gradually:
Debt is, often, essential. But the idea is to take the right kind of debt, use it prudently and service it well.
One could opt for a longer tenure when you take a loan, to ensure that your EMI is low. You could also increase your credit limit. How to improve the CIBIL score through this? This does not mean you are going to spend more money. That trick is to have more credit and keep your utilization low to leave a positive impact on your cibil score.
Over a time, you can build up a healthy CIBIL score that can get you quick and competitive loans.