Updated Feb 24, 2022

What is CIBIL Score?

What is a Cibil score?

 

 

Your CIBIL score is a three-digit numeric summary of your credit history that is calculated using information from the 'Accounts' and 'Enquiries' sections of your CIBIL report, such as (but not limited to) your loan accounts or credit cards and their payment status, as well as outstanding amounts' days past due. Based on your borrowing and repayment history as reported by lenders, the score represents your creditworthiness. Your CIBIL score ranges from 300 to 900, with higher scores indicating more likely you are eligible for loan approval. Borrowers with a CIBIL score of 750 or higher receive 79 percent of loan approvals.

 

 

How is the CIBIL score calculated?

 

Four significant things influence your CIBIL score:

 

Payment history:

Late payments or EMI defaults have a negative influence on your credit score.

 

Credit distribution:

A balanced combination of secured and unsecured loans is likely to have a good effect.

 

Several inquiries:

A high number of loan inquiries may harm your credit score because it implies that your loan load may increase in the future.

 

Excessive credit utilisation:

A high credit utilization limit suggests an increasing debt burden over time and may harm your credit score.

 

 

How can you improve your CIBIL score?

 

Your CIBIL score is based on your credit history and past payments, but it also influences your future credit access. What you do today can help you develop a stronger and healthier credit footprint in the future. Here are a few pointers to help you raise your score:

 

• Pay your dues on time every time. Lenders regard late payments badly.
• Maintain a low balance. Be cautious, don't overextend your credit, and keep track of your usage.
• Maintain a good credit mix of secured (such as a home loan and an auto loan) and unsecured loans (such as a personal loan and credit cards) - having too many unsecured loans may be seen unfavorably.
• Apply for new credit with caution. This demonstrates that you are not constantly seeking extra credit.
• Keep track of your co-signed, guaranteed, and joint accounts every month. Remember that missing payment in co-signed, guaranteed, or jointly held accounts are held equally culpable, and your joint holder's (or the guaranteed individual's) negligence may damage your capacity to access credit when you need it.
• Check your credit history regularly throughout the year. To avoid unexpected shocks, keep an eye on your CIBIL Score and Report regularly (like a rejected loan application). Regularly reviewing your report will also alert you to any inaccuracies. If you find a mistake, you can file a dispute on the CIBIL website or ask the lender to report the adjustment to CIBIL.

 

 

The Advantages of Keeping a Good Credit Score

 

Allows you to apply for loans

A high credit score is your passport to being approved for loans and credit cards. If you have a decent credit score, it indicates that you have been repaying your debts and are knowledgeable about credit. It will give lenders an excellent justification to offer you a loan because you have a low chance of becoming a defaulter.

 

Credit Cards

A high credit score will also help you receive a credit card with greater rewards and benefits, in addition to loans. With a credit score of 750 or above, you will be able to obtain credit cards that are appropriate for your needs.

 

Low-Interest Rates

One advantage of having a good credit score is that banks may offer you a cheaper interest rate on your loans. Given your payback history, there is a good chance you may be eligible for interest rate reductions on loans.

 

Increased credit card limits

A good credit score will not only get you a reduced interest rate on your credit cards and loans, but it will also help you acquire a larger loan amount. In contrast, a low credit score will result in a reduced credit limit. A high credit score indicates that you can manage credit well, and as a result, banks may consider issuing you a credit card with a greater credit limit.

 

Faster loan approvals 

Consumers with a long credit history and a high credit score can get pre-approved loans from a variety of lenders. One of the most significant advantages of having a high credit score is that banks will approve loans more quickly. Your loan application is authorized right away and there is no waiting time.

 

Increases the worth of a visa application 

If you have an excellent credit score, it will help your visa application. When you apply for a visa in most countries, such as the United States or the United Kingdom, your income tax records are taken into account. As a result, a good credit score could offer the visa application a boost.

 

For the near future

Even if you don't intend to apply for loans or credit cards shortly, make sure you keep a solid credit score or credit history. A good credit score will help you in the future whether you apply for house loans, personal loans, credit cards, or any other type of loan. It is usually preferable to have a credit history because it allows lenders to assess your creditworthiness.

 

 

Tips for Keeping a Good Credit Score

 

• Make on-time payments on all bills including EMIs.
• Avoid paying bills late.
• Do not go behind on your loans or credit cards.
• Keep your credit utilization ratio low.
• Don't close old credit cards or you'll lose your good credit history.
• Try not to make numerous credit queries at the same time.
• Only apply for multiple loans or credit cards if you truly need them.
• Keep a blend of secured and unsecured loans.
• Keep strong relationships with banks and financial institutions.
• Check your credit report daily
• Check your credit score daily.

 

 

What are the most common credit-scoring models?

 

The majority of credit ratings fall into one of two categories: FICO and VantageScore. The distinctions between VantageScore and FICO are modest, in that a person with a good FICO score is likely to have a good VantageScore as well. Similarly, a person with a low credit score in the FICO scoring model is likely to have low credit in the VantageScore model.

 

Here's what you should know about the many sorts of credit scores:

 

FICO model

Fair, Isaac, and Company created the FICO credit score in 1989. (now called the Fair Isaac Corporation). According to MyFICO, FICO credit ratings are used by more than 90% of top lenders to determine loan decisions.

 

FICO provides a wide range of credit scores. A lender may examine your FICO Auto Score if you apply for a car loan, for example. A lender may look at your FICO Bankcard Score if you apply for a credit card. If you don't yet have much of credit history, you can join up for UltraFICO to have your banking activity incorporated into your credit score.

 

FICO's credit scoring models are updated regularly to reflect industry developments and provide a more nuanced view of an individual's creditworthiness; however, these models can take some time to roll out. FICO, for example, recently announced the FICO Score 10 package, but the FICO Score 8 model remains the most generally utilized FICO credit score.

 

The FICO credit score ranges are as follows:

• Exceptional: 800-850
• Very Good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579

 

VantageScore model

The VantageScore model was developed in 2006 as a result of a collaboration between the three major credit agencies. VantageScore was developed by Equifax, Experian, and TransUnion as an alternative to the FICO rating model. Although VantageScore employs many of the same characteristics as FICO, it weights these elements differently.

 

According to the FICO scoring model, for example, your payment history is the most important element influencing your credit score. Your credit card balances and credit usage ratio are the most influential criteria in credit rating, according to the VantageScore model.

 

VantageScore, like FICO, upgrades its credit scoring models regularly. The VantageScore 4.0 model, for example, became commercially accessible in 2017 and tracks changes in credit behavior over time using trended data. FICO's Score 10 Suite uses trended data into credit scoring choices as well, but VantageScore was first.

 

The VantageScore credit score ranges are as follows:

• Excellent: 781-850
• Good: 661-780
• Fair: 601-660
• Poor: 500-600
• Very Poor: 300-499

 

 

Conclusion

You may require credit to meet your financial objectives or in the event of an emergency. Monitor your CIBIL score and credit profile regularly to guarantee you are credit-ready. Begin working on boosting your score right away.