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All You Need to Know About CIBIL Score

What is CIBIL

TransUnion CIBIL Ltd is India’s first credit bureau. It collects and maintains credit information reports from banks and financial institutions about individuals’ loans and credit card payment history. This helps to evaluate the creditworthiness of the borrower so that banks and financial institutions can offer credit products such as credit cards and loans.

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What is a CIBIL Score?

Just like we had grades and marks in school and college to judge our expertise in a particular subject, similar is the case with CIBIL Score. CIBIL score is a three-digit score that summarises the credit history and worthiness of the individual. It is derived from the CIBIL Report. It helps financial institutions to predict the likelihood of the default based on their credit history. It is the first check that is carried by the banks to move forward with a credit product and acts as a first impression.

The value of the score ranges from 300-900.

If the CIBIL score is low, financial institutions are most likely to reject the application. If the CIBIL Score is high, banks may look into the application and consider other details as well before lending or offering a credit card. Most credit scores fall between 600 and 750. A CIBIL score of above 700 is considered a good credit score.

CIBIL score calculation

The CIBIL score depends on four key factors such as payment history, a mix of secured and unsecured credit, high credit utilisation and too many loan queries.

Payment history:

Making payments after the due date or defaulting on loan EMIs negatively impact the credit score. Hence, to avoid late payments, one can register the biller through the BillPay section from your bank’s app or internet banking. You will receive a notification after a new bill is generated. You can pay the bill directly after logging in with your credentials.

Credit mix:

A mix of secured and unsecured credit has a positive impact on your credit score. A higher proportion of unsecured debt such as personal loans and credit cards can lower your score. As secured loans are backed by collaterals, it increases the creditworthiness of the borrower. 

High credit utilisation:

Credit utilisation is the ratio of the outstanding credit balance when compared to your credit limits of a credit card. E.g., if your credit limit is Rs.1 lakh, and you have used Rs.10,000, then the credit utilisation is 10%. A high credit utilisation limit, say 80% or 90% over a time frame may adversely impact the CIBIL score as it indicates a rising debt burden.

Multiple enquiries:

Making loan enquiries may hurt your credit score. It is because it acts as an indicator of your future loan requirements and it signals that the customer may take further loans in the future.

How to check your CIBIL score

CIBIL score can be checked through various free online tools. One can also check their CIBIL score through the CIBIL’s official website. Here are the steps that you need to follow to check your credit score:

Step 1: Create an account. Create your username and password and enter your name, email id, and mobile number.

Step 2: Enter your details. Add your date of birth, address, identity proof such as PAN card and Aadhaar card. Make sure to add the personal details as per your identification proofs.

Step 3: Verify your identity. CIBIL will send you an OTP to verify the details that you have submitted. It may also ask for more details for further clarification.

After you submit all the required details, CIBIL score and report will available.

How to read a CIBIL report?

The CIBIL report is divided into 6 sections.

CIBIL Score: It indicates your creditworthiness.

Personal Information: It consists of your personal details as provided by the bank such as the name, date of birth, gender and identification numbers such as PAN, passport number and voter card’s number.

Contact Information: This section includes all your contact details such as address and telephone numbers. It can record up to 4 addresses.

Employment Information: This section records monthly or annual income details as reported by banks and other financial institutions.

Account Information: It contains the details of your credit facilities which includes the name of banks, type of credit facilities given, and other payment details.

Enquiry Information: Every time you apply for a loan, the bank accesses your credit information report and makes a note of this in your credit history report. This is called as enquiries.

How to Improve Your Credit Score

Having a good credit score helps in securing loans faster and get an attractive interest rate.

Here are some of the ways that can help to improve your credit score:

  • Always pay your dues on time
  • Keep a low utilisation ratio. Don’t spend more than 90% of the credit limit.
  • Have a healthy mix of secured and unsecured credit
  • Don’t seek excessive credit
  • Monitor your CIBIL Score and Report regularly to avoid shocks in the form of a lower credit score or pending payments on your closed credit cards.

Conclusion: A good CIBIL score can help you to get the credit card of your dreams. However, if you have a low CIBIL score and finding it hard to get a credit card, you can easily get a credit cards against your FDs. You just need to have or create a fixed deposit worth Rs. 15,000.

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