A credit score is a numerical summary that represents the creditworthiness of a borrower. It reflects the way borrowers have handled their credit and is perhaps the first thing that lenders assess to determine whether the borrower will be able to repay the loan amount on time or not.
Having a higher credit score will entitle borrowers to qualify for a high loan amount and fetch a competitive interest rate. The sections below list all the particularities related to the CIBIL score and how to conduct a CIBIL score check.
Importance of credit score
Credit score highlights the borrower’s credit health and summarises the borrower’s current and past credit transactions. It helps borrowers to comprehend their financial standing and whether they qualify for a loan amount or not.
In addition, with higher credit score borrowers can not only get lower interest rate but also qualifies for the best credit card and loan offers. For instance, borrowers can get rewards like cash cashback, travel points etc.
CIBIL score is computed depending on borrowers’ financial history, credit utilisation, credit mix and more. The ideal CIBIL score range is 750 and above. Hence, borrowers must know the impact of all these parameters on credit scores.
How to ensure a higher credit score?
Besides knowing the credit score meaning, borrowers must also emphasize improving it. A higher credit score helps borrowers get favourable loan terms; hence borrowers must know all the ways to ensure it.
- Get a balanced mix of credit
Borrowers must ensure a balanced credit mix while making loan applications. They must borrow both secured and unsecured credit choices for both long and short-repayment tenor. For instance, borrowers who settle only for unsecured credit options might be considered credit-risk individuals. Maintaining a healthy coalescence of credit choices will help in building a good CIBIL score.
- Low credit utilisation ratio
To improve credit score, it is advised to maintain a credit utilisation ratio of 30% and below. Borrowers who try to abide by the suggested credit utilisation ratio or restrict credit usage will have a higher credit score. In this regard, borrowers can choose to customise the credit limit as per their expenses. When borrowers have a balanced credit mix, it reflects that they can handle different accounts efficiently.
- On-time payments
Timely repayments of debts, EMIs, credit card bills etc., have a significant impact on CIBIL score rating. Hence it is important for borrowers to be mindful when it comes to clearing outstanding debts or EMI payments. Missing out or defaulting on EMI payouts will lower the CIBIL score. In the case of credit card dues, borrowers must avoid paying only the minimum credit card due; instead, they must clear the entire amount.
- Avoid multiple loan applications
It is important for borrowers to keep borrowing to a minimum. Applying for multiple loans reflects the credit-hungry conduct of a borrower. In addition, as one applies for a credit option, financial institutions will conduct an assessment of borrowers’ credit reports. This is termed as a hard enquiry and the same will get reflected on the credit report. Repeated hard enquiries will bring down the credit score. Hence, borrowers must avoid applying for too many loans at the same time.
- Review credit reports frequently
Checking the credit score on a regular basis is the most effective way to detect discrepancies and errors in a credit report. Missing information or wrong data entry will have a negative impact on one’s CIBIL score. Hence, it is important to review the scores for errors and rectify them to improve the CIBIL score.
Even, the duration for which one is holding a credit account influences credit score. It is generally suggested to maintain older credit cards as long as one can clear bill payments on time. It will help in building a long credit history, which will further improve credit score.
Maintaining a higher credit score will also help borrowers make the most of pre-approved offers. These offers are extended by several famous financial institutions on different financial products like home loans, loans against property etc. These offers ensure that the loan application process is streamlined. Intending borrowers can check the pre-approved offers by entering their name and contact details.
How to check the CIBIL score?
If borrowers are wondering how to see the CIBIL score, they can follow the mentioned steps to do so conveniently:
Step 1: Visit the CIBIL website and click on ‘Get Your CIBIL score’.
Step 2: Provide personal details like name, date of birth, PIN code etc., and select ‘Accept and continue’.
Step 3: Validate the details with OTP. Click on ‘Go to dashboard’ and get redirected to next page, then click ‘Member login’. Once borrowers log in, they can see the CIBIL score.
CIBIL score plays a major role in the sanction of credit options, especially for the unsecured ones as they are not backed by collateral. However, for secured credit options like home loans, besides scrutinising the CIBIL score, lenders also assess the property and related documents. The minimum CIBIL score for a home loan or any other secured credit option varies depending on the requirements of different lenders.
To recapitulate, ensuring a higher CIBIL score is vital for those willing to avail credit options. It helps borrowers establish they are creditworthy, and that they will repay the loan amount on time. In this context, it is important for borrowers to consider the above-mentioned factors and carry out CIBIL score checks at regular intervals.
