What is a CIBIL score?

CIBIL stands for Credit Information Bureau (India) Limited.  This first established credit information company in India gathers and maintains credit details of individuals and commercial bodies i.e. details of loans takens, its repayment details, credit card payments and so on. Based on these CIBIL gives a rating which is a three digit number ranging between 300 to 900 summarising the entire credit history of the concerned party be it an individual or an organization. Also referred to as the Credit Bureau, CIBIL  is licensed by the RBI and the Credit Information Companies Regulation Act, 2005 governs it.

The Significance of CIBIL Score 

The CIBIL score is a three digit number that ranges between 300 and 900. Higher the CIBIL score more is your established credibility among lenders. Every month different  banks and financial institutions report their customer’s credit-related transaction details to the bureau. This includes details of every loan taken, loan repayments made, outstanding information, new loans applied, loan %, credit card repayments in the period, applications for new lons, and so on. All this data is subjected to different statistical calculations and complex analysis to derive at the individual’s/organizations CIBIL score. A good loan repayment/credit card outstanding repayment history ensures a good score. Higher your score better are the prospects of getting a loan or credit card.

How does Your CIBIL Score and Your Home Loan Relate?

Your CIBIL score and Your Home loan approval process are very much related. When you apply for a home loan to buy a property,  the first thing the banker or the financial institution does is to check your CIBIL score. This is to evaluate your repayment capability and gauge whether  you are a high risk or low risk customer. Higher your CIBIL score better possibility for the approval of the loan, a lower score would delay the process and at times even culminate into the loan being rejected. Your credit score is the mirror of your loan repayment capability and your home loan lender makes the best use of  it to derisk the process. A good credit score of 750 or above is preferable and it brings with it an array of benefits –

  • Better home loan interest rate – A higher CIBIL score makes you eligible for a better loan interest rate for your loan.In many cases the lender offers a discount on interest rates to customers with good CIBIL score.
  • Sanction of Higher loan amount –  A good CIBIL score enables you for a higher home loan amount. Since your lender is convinced of your loan repayment capability and willingness they would be ready to lend a greater amount
  • Approval for Longer loan tenure – A  higher CIBIL score places you in a position to request and receive approval for a  longer loan period.
  • Easy and Quick Loan approval process – A  higher CIBIL score ensures an easy and effective process. Your chances are much higher of acquiring the desired amount of loan from the bank or the non-banking finance company (NBFC) you have applied for. Different banks benchmark different CIBIL score for approval, however most of them prefer a score of 750 or more.

How to Improve Your CIBIL Score?

You can get your CIBIL  score by applying directly on the official CIBIL website. A CIBIL score of 750 or more is definitely good news, else you will have to work towards improving it. Here are some means

  • Be prompt in your payments – The most definite way to maintain a decent score is timely payments of your credit card outstanding payment and EMIs. Though agencies might  ignore the first few delayed payments, repeated delays would definitely impact your good score.
  • The right mix of Loans – It is better to have a borrowing history with more secured loans (there exists a collateral or security). So remember to have a right mix of  secured/unsecured loans for a better credit report.
  • Always stay within your credit – It is advisable to remain within your credit limit, this would improve your score and exceeding that would have a negative impact.
  • Lesser is Better – Limit the number of credit cards and loans you acquire. Keeping it less will also help you repay them on time and multiple ones will also cause you to overspend leading to accrued debt in our life.

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