What Is A CIBIL Score And Why Is It So Important

A good CIBIL score has its perks, which includes better negotiating power when availing credit. An excellent score also enables you to be credit ready and makes it much simpler to access credit even in urgent situations.

What Is A CIBIL Score And Why Is It So Important
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Your CIBIL score is a vital part of your financial profile. It provides a holistic overview of your financial standing as it is based on your past dealings with credit. As such, lenders often rely on it to gauge your creditworthiness.

Your CIBIL score ranges between 300-900, and scores close to 900 imply that you can handle credit well. Given this, the majority of the lenders have a minimum score requirement of at least 750, 700 in some cases.

Your CIBIL score is calculated by the credit rating agency, TransUnion CIBIL. The credit rating agency receives this information from numerous financial institutions, including banks and NBFCs.

While your CIBIL score does play a crucial role in determining your eligibility for credit, there are other reasons why having a good credit score is important. Here are pointers about the importance of a good CIBIL score and what you can do to have an excellent score.

Importance Of A Good CIBIL Score

  • Increases Chances Of Availing Competitive Interest Rates

Interest rates have a significant impact on your cost of borrowing. A higher interest rate will lead to higher costs and increased financial strain. As such, availing competitive interest rates is vital to managing your loan easily. 

Here, your CIBIL score comes into play as it can influence the rates you get. Credit rating agencies account for many factors when assigning a score, and lenders assess these as well. Hence, having a high score helps and will work in your favour.

A high CIBIL score implies many things. Firstly, it states that you have experience with credit and know how to manage your finances well. Secondly, it indicates that you have a proven repayment track record, and can repay on time.  

Lastly, it means you are creditworthy, and your high CIBIL score opens doors to special deals and offers on credit products. In most cases, it leads to lower interest rates. 

  • Improves Eligibility For Higher Loan Amount

Your CIBIL score is a crucial component to displaying a good credit profile. It is calculated after considering your past credit behaviour. This includes your defaults and delayed payments as well. 

When a credit rating agency assigns a high CIBIL score, it generally implies that you have a low-risk of defaulting. Whereas, a low score implies an increased possibility of default, making you a high-risk borrower.

For lenders, a higher loan amount means an increased risk. This is why it is highly unlikely that you get a large sanction if you have a low score. It will be easier to get a high-value loan if you have an excellent score and an impeccable credit profile. 

  • Offers Flexibility With Certain Loan Terms

For you, a lengthy tenure means better customisability when it comes to repayment. However, for the lender, a lengthy tenure translates into an increased risk. As a result, flexibility in repayment tenure is not offered to every applicant.

Here, your CIBIL score can play a pivotal role in increasing your chance to get a better tenure. Credit rating agencies assign a high credit score only if you have managed your finances well in the past. Given this, lenders may determine the flexibility of tenure on your CIBIL score. 

  • Enhances Your Eligibility For New Credit 

Your CIBIL score is based on previous and current credit accounts. As such, it offers insight into your credit management capabilities. Credit rating agencies consider your credit mix and your credit utilisation when assigning a score, and these matter to lenders too. 

Both of the above factors indicate how responsible you are when using credit and whether you can handle different types. This experience with multiple types of credit suggests that you are capable of handling new credit, without much issue. 

Given this, the risk for the lender in offering you a new credit is reduced. Therefore, when lenders see a high CIBIL score, they are more likely to offer you a new credit with relative ease.

  • Ensures Quick Access To Sanctioned Loan Amount

For lenders, your credit score is one of the main markers of creditworthiness because it is calculated by agencies after a thorough review of your financial profile. This is why it is often a part of a lender’s eligibility requirements.

When you meet a lender’s CIBIL score requirement, it provides assurance of your financial capabilities. As a result, the time to process, verify, and scrutinise the details of your application and profile gets reduced.

This further results in reduced processing time, which grants you quicker access to the sanctioned loan amount. In some instances, you may even be eligible for a pre-approved from certain lenders because of a high CIBIL score. 

With pre-approved offers, the lenders already have a credit offer ready for you based on your credit profile. Since the verification aspect of your credit application is completed before you apply, the processing time is much quicker. This grants you even quicker access to funding and often on better terms too.

Tips To Boost Your CIBIL Score

Improving your CIBIL score takes time and consistent efforts. When you follow smart financial habits regularly, it helps in gradually building the foundation of a good credit score. Some of the habits that can help give your credit score a boost are:

  • Repaying your monthly dues on time

  • Regularly checking CIBIL score report

  • Keeping an eye on credit utilisation

  • Maintaining a healthy balance between secured and unsecured credits

  • Availing credit only when necessary

  • Avoiding too many credit applications in a short period

  • Increasing credit limit, if necessary

Being financially prudent will help you safeguard your finances and maintain a high CIBIL score. Remember, a good CIBIL score has its perks, which includes better negotiating power when availing credit. An excellent score also enables you to be credit ready and makes it much simpler to access credit even in urgent situations.



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