There are many ways to spend money smartly. Many consumers use their credit cards to buy something immediately, or on EMI, or take a loan. CIBIL score is a factor of credit cards that is very important for users. CIBIL score also called “credit score” is the measure of your creditworthiness. In this blog, we will understand what is CIBIL score, and why it is so important.
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Full Form of CIBIL Score: Meaning
The full form of CIBIL is Credit Information Bureau (India) Limited (CIBIL) and is an authorised credit agency by the Reserve Bank of India (RBI). CIBIL score or credit score reflects your credit history and worthiness. It is a three-digit score that is awarded to you based on your financial history. India’s pioneer information and insights company, TransUnion has all the financial credit information. This information is regarding the money borrowed and repaid. In simple words, you can understand this as an average of your consistency regarding borrowing and reaping the credit in the past.
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Why is CIBIL Score Important?
CIBIL score is important because it represents how good a borrower you are. It is a direct measure for eligibility checks while applying for a new loan or when the lender offers you a loan amount. It also defines the rate of interest you will be charged.
The credit score is a judgement scale for the risk of lending you money. Therefore it is an important aspect when you try for collateral-free loans and it also affects your personal loans to great capacity.
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What is a CIBIL Score?
CIBIL score is a three-digit score and ranges between 300 to 900, where 300 denotes minimum creditworthiness while 900 denotes the maximum. It is good to have a CIBIL score above 750 for qualifying to avail the personal loans and getting credit cards.
A score below 750 will make the journey of borrowing difficult. In such a scenario, you may be charged with a higher interest rate. Sometimes, the application is rejected on the basis of a low credit score, below 750. Therefore it is very essential to keep the score above 750 at all times.
How to Check your CIBIL Score?
It is very simple to check your score. You can simply visit the credit information companies website for your details. A small fee is charged for this action. You can also avail of the service by getting unlimited access by paying a monthly or yearly fee.
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How to Read a CIBIL Report?
The credit report is very simple to read and is a very detailed document that pinpoints your entire history of financial transactions and records of borrowing. It has personal information, employment history, credit limit, credit card balances, and date wise financial transaction report. People who take a look at the score report our creditors, lenders from banks or non-financial companies, and landlords. The report consists of four important sections that cover all the aspects of financial history. It includes the following:
- Credit summary
This section comprises all the details of credit accounts that you have had in the past and are currently possessing. The account information is provided in different segments such as credit cards, instalments for different expenses, home loans, loans against property, and any money collection accounts.
- Account history
This section includes the details of the lender’s name, type of credit borrowed, account number, date of account opening, the recent payment history, the amount of loan borrowed, present balance, and monthly record for the past three years of repayment is given in brief.
- Public records
This section has both previous and current financial slip-ups. This is regarding any history of criminal arrest or bankruptcy. A special focus is paid on this section to identify if there are any chances of committing the same mistake in future.
- Credit enquiries
This section has data on the occasions where a third party accessed your credit report within the last two years. Every time a lender checks the credit report, it is counted as an enquiry. This enables the Lender to check the number of loan applications made by you in the past.
Significance of a CIBIL Score for Loans
To avail of a personal loan, car loan, or a home loan, having the CIBIL score above 750 is the minimum requirement. However, it depends on the lender if they provide you with a personal loan below that score. CIBIL scores are important for the following purposes:
- To avail business loan, you need a score of 700 and above for a collateral-free business loan.
- To avail of a home loan, you need a score above 650 at least. The score here is less because a home loan is a secured loan. In case of failing to repay, the home can be seized.
- It is a healthy practice to maintain a good CIBIL score to avoid any financial troubles in the future.
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Factors that Impact CIBIL Score
The main factors that impact CIBIL score are four. We have shared them below.
- Payment History
- Credit mix of secured or unsecured loans
- Credit utilisation
Additionally, the CIBIL score algorithm also includes the depth of credit, ratio of payment amount to total amount due; new accounts opened or closed, trend of outstanding balances, transaction history on credit cards.
Tips to Improve your CIBIL Score
Maintaining a good CIBIL score is not a difficult job. By following the given tips below, you can improve your CIBIL score too:
- Avoid too many loans for a short period of time
- Ensure to repay all EMI is and credit card bills on time
- Have a repayment plan in place before borrowing
- Don’t co-sign any other known during borrowing time
- Borrow a small personal loan and repay it on time to build a credit score
- Talk to financial experts on saving taxes and spending money efficiently.
- Don’t borrow the entire amount from the sanction offered
- Choose short tenure to repay the loan fast.
Finances and credit score is an important aspect of every individual‘s life. Specifically, if you are young and starting up your own business. You will certainly need a bank loan for this purpose. Ensure to read everything about such loans and boost your credit score beforehand.
A good CIBIL score is generally above 700.
Manage your credits well to get a good CIBIL score such as 700.
A 300 CIBIL score is considered really poor.
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