What Is CIBIL Score And Why Is It Important?

CIBIL score is a three-digit number within 300 – 900 that credit bureaus assign to Individuals based on the available information in the credit report. The latter contains details such as payment history, loan accounts, credit card information, enquiry details, etc. of an individual. The credit score allocated to an individual is calculated after considering his/her last 24 month's credit behaviour, with a good credit score indicating healthy credit behaviour.

The score is crucial since it is used by lending institutions to ascertain an individual's creditworthiness. Accordingly, it is also one of the main eligibility parameters for unsecured credits, such as personal loans.

Importance of credit score

A credit score of 750 and above is considered reliable by lending institutions for the purpose of extending advances such as personal loans. It also reflects that the individual has handled his or her credit responsibly and is more likely to repay the loan in time in the future. Consequently, financial institutions will also quickly sanction the loan application of individuals with a good CIBIL score.

On the other hand, a low credit score suggests that the individuals have been irresponsible with their credit repayment and are considered to carry higher risk. Lending institutions either reject the loan application or levy a higher interest rate on applicants with a low score.

CIBIL score vs. credit score and the process to know your score

Among the four credit bureaus operating in India, TransUnion CIBIL has attained prevalence, and its scoring methods are used by most leading financial institutions to assess an individual’s credibility. As such, CIBIL score is often used as a credit score reference in India.

It is also ideal for borrowers to know their CIBIL score before applying for a personal loan. They can follow the steps listed below to check the CIBIL score –

●     Visit the official website of CIBIL and click on the tab marked 'Get your CIBIL score'.

●     Provide details such as your name, email ID, password, mobile number, etc. to create an account and generate login credentials.

●     After creating an account, individuals will need to verify their identity. An OTP will be sent to their registered phone number, which should be entered on the screen to complete the authentication procedure.

●     Individuals will then be redirected to another window where their registration will be confirmed. They can then click on the option 'Go to Dashboard' to check their CIBIL score for personal loan or any other required advance application.

Borrowers who do not hold a good CIBIL score can adopt several measures to improve the same. It includes the following –

1. Maintain a positive repayment history

Repayment history is one of the main aspects that significantly impact an individual's credit score. Financial institutions refer to this factor to ascertain a prospective applicant's repayment behaviour and the likelihood of him/her paying back by the due date. Therefore, borrowers should try to repay their existing loan EMI and credit card bills in time to maintain a good CIBIL score.

●     Reduce credit utilisation ratio

Credit utilisation ratio refers to the percentage of credit used by individuals out of the total credit available to them. Ideally, to maintain a good CIBIL score, credit utilisation ratio should be below 30% as it will indicate that he or she is fiscally responsible.

Besides a good CIBIL score, there are also other criteria that lending institutions refer to while determining loan eligibility. Thus, while applying for unsecured advances like a personal loan to meet their financial needs, borrowers should look for financiers that lay down simple eligibility and documentation parameters, shortening the processing period.

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One can also consider opting for financial institutions such as Bajaj Finserv when availing the advance to benefit from pre-approved offers. Such offers will further simplify the loan application procedure that can be availed on an array of credit products. It includes products like personal loans, business loans, credit cards, etc. One can easily check his/her pre-approved offer by entering nominal details like the name and contact information.

In addition to eligibility parameters and documentation, applicants should also consider lending institutions that offer personal loan features and benefits like high-value loans at competitive interest rates. To this end, they can use online tools like personal loan EMI calculator to compare lenders and arrive at an affordable EMI option.