Understanding CIBIL Score: A Complete Guide for Better Financial Health

A CIBIL score is a credit score that is used in India to measure an individual's creditworthiness. It is based on an individual's credit history and ranges from 300 to 900, with higher scores indicating a better creditworthiness. A score of 750 or more is considered to be excellent, while a score of less than 600 is considered to be poor. Banks and other financial institutions use the CIBIL score to determine an individual's eligibility for loans and credit cards.

How to work credit score?

To work out a credit score, lenders look at a range of factors including your payment history, credit utilization ratio, credit types, length of credit history, and how many new applications for credit you have made. Payment history is the most important factor, accounting for about 35% of the score. This means that if you have a history of making timely payments and staying within your credit limits, your score will be higher. Credit utilization ratio is the second most important factor, accounting for about 30%, and is determined by the amount of credit you are using compared to the amount of credit you have available. Other factors, such as credit types and length of credit history, also play a part in determining your score.

Why is CIBIL Score important? 

CIBIL Score is important because it is one of the key factors that lenders consider when deciding whether to approve your loan or credit card application. A higher CIBIL Score indicates that you are a responsible borrower who is likely to repay the loan on time, which increases your chances of getting approved and getting favorable terms such as lower interest rates.

Features

1. It is based on an individual's credit history, which includes details such as the number of years of credit history, total number of open accounts, total number of accounts that are past due, total number of accounts that have been closed, and the total amount of debt. 2. It is a three-digit number that ranges from 300 to 900, with higher scores indicating a better creditworthiness. 3. Banks and other financial institutions use this score to determine an individual's eligibility for loans and credit cards. 4. A score of 750 or more is considered to be excellent, while a score of less than 600 is considered to be poor. 5. It is important to maintain a good CIBIL score to ensure that you are able to get the best rates and terms on loans and credit cards.

How is CIBIL Score calculated?

CIBIL Score is calculated based on your credit history, which includes your credit accounts, payment history, credit utilization, credit inquiries, and other factors. The exact calculation method is proprietary to CIBIL, but generally, a good payment history and low credit utilization can boost your score, while late payments, high credit utilization, and multiple credit inquiries can lower it.

Is it possible to take out a loan & credit card if the credit score is poor?

Yes, it is possible to take out a loan and credit card with a poor CIBIL score, however, it may be more difficult to get approved for the loan and the interest rate may be higher. Additionally, lenders may require you to provide more information and may require you to provide collateral to secure the loan. Therefore, it is best to try to improve your CIBIL score before taking out a loan or credit card, as this will help improve your chances of getting approved and may also help you get better terms and conditions.

How to keep CIBIL score correct?

• Always pay bills on time: One of the most important things you can do to improve your CIBIL score is to make sure that you always pay your bills on time. Late payments can have a negative impact on your score, so it’s important to make sure that all of your payments are made on time.
• Keep credit card balances low: It’s important to keep your credit card balances low, as having a high credit card balance can have a negative impact on your CIBIL score. Aim to keep your credit card balance at around 30% of your total credit limit.
• Don’t close old accounts: Closing old accounts can have a negative impact on your CIBIL score, so it’s best to keep them open as long as possible.
• Monitor your credit report: It’s important to monitor your credit report and make sure that all of the information is correct. If there are any errors or mistakes, you should dispute them immediately.
• Don’t apply for too many new accounts: Applying for too many new accounts can have a negative impact on your CIBIL score, so it’s best to only apply for the accounts that you really need.
• Avoid taking out payday loans: Payday loans can have a negative impact on your CIBIL score, so it’s best to avoid them if possible.
• Monitor your credit utilization ratio: Your credit utilization ratio is the amount of credit you are using compared to the amount of credit you have available. It’s important to keep this ratio low, as having a high ratio can have a negative impact on your CIBIL score.