Are you trying to get approved for a loan or an attractive fintech offer? Maybe your lender is asking about your CIBIL score but you don’t know how to check yours. Follow this article if you want to know how to check CIBIL score and learn effective ways to maintain a good credit history.
Life is good when you have a good credit score. These are the times when you constantly have to maintain your financial life. And credit score plays a big part in this. This three-digit number is useful to achieve important milestones in a person’s financial life. For example, it’s useful when you are renting an apartment, buying a car, or getting a mortgage for your first home. Borrowers need to maintain a good credit history in order to rent things out.
Over the last couple of years, there has been an increase in small-ticket loans due to various reasons. Worldwide economic crisis due to the COVID-19 pandemic, job losses due to layoffs, inflation, salary cuts, and other several reasons have driven millions of people to opt for loans. Crunched economic activities are leading people to financial distress. Because of this, both short and long-term loans have spiked.
Credit history plays an essential part in taking out loans. When you go to banks, individual lenders, or any financial institution and apply for a loan, the first thing that they are going to inquire about is your credit history or CIBIL score. If you don’t have a good credit or CIBIL score, there are chances that your loan application gets rejected. However, if you have maintained a good CIBIL score, there are higher chances of your loan approval.
As a borrower, you need to be mindful of the factors that affect your credit score. You must be aware of how to maintain a good credit or CIBIL score so that your credit report comes out good. Credit reports provide detailed descriptions of your credit score. Lenders use credit reports to approve or disapprove your loan applications. That is why it is imperative to maintain a good credit score.
However, individuals sometimes get confused about what a CIBIL score is, how to check CIBIL score and what are the key factors that are used to determine the score. This article will explain everything in detail so follow it till the end to find out everything about your CIBIL score.
What is the CIBIL score?
CIBIL or Credit Information Bureau India Limited is one of the leading credit bureaus in India responsible for assessing an individual’s creditworthiness. The financial organization is known for providing a three-digit numeric score based on an individual’s credit history. This score is called the CIBIL score. Financial institutions like banks and NBFCs use the individuals’ CIBIL score to assess their liabilities.
CIBIL score is the credit score that is a summation of your credit history and rating. This three-digit number ranges from 300 to 900 and is derived using the credit history found in the CIBIL report or CIR (Credit Information Report). A CIBIL report contains an individual’s payment history across loan types and credit institutions over a specific time period. However, there are no records of savings, investments, or fixed deposits in your CIBIL report.
A score above 750 is assessed to be a healthy CIBIL score and a score below this is considered a bad one. Maintaining a good score is necessary if you want to achieve hassle-free loans. A good credit score is advantageous in terms of interest rate as well. Individuals having good scores are able to avail of loans at lower interest rates as compared to those having bad scores.
Although lenders make sure to check out every little detail before accepting a loan application, a good CIBIL score plays a major role in the loan approval process. The higher the CIBIL score, the more the chances of getting your loan application approved. Records show that more than 80% of all new loans are approved based on credit scores beyond 750.
A good CIBIL score helps not only while getting loans; it also helps to get good offers related to financial incentives. For example, when you are buying or renting a car or an appointment, a good CIBIL score can make things easier for you in such situations. The next part of the article describes the importance of a good CIBIL score.
Why is a good CIBIL score important?
You can have an average CIBIL score but that won’t land you anywhere good. A good CIBIL score is vital for establishing a healthy financial portfolio for yourself. An above-average score comes with many advantages.
A good CIBIL score is an indicator of an individual’s creditworthiness. When a bank or financial institution looks up your credit score, they are able to assess your financial credibility based on your credit history. The three-digit number is enough to prove your creditworthiness at any financial point in life.
As mentioned earlier, a good CIBIL score is of utmost importance when it comes to getting your loan applications approved. Lenders use the CIBIL score as the basic criteria to evaluate their decision of approving or disapproving your credit score. A good CIBIL score can get your loan approved right away. Some financial institutions automatically approve your loan if you have an excellent CIBIL score.
Renting and buying property
A good CIBIL score certainly helps in financial activities like renting or buying any property. If you wish to buy something like a car or a house, the previous owner will want to make sure that he is dealing with the right person; someone who is not a fraud and is capable of paying full price. And knowing your CIBIL score can help him with that.
Similarly, if you want to rent out something, the owner can check your CIBIL score to assess your credibility, and if it’s not good enough, he might hesitate or refrain from renting his property to you. That’s why maintaining a good CIBIL score is important.
Factors determining CIBIL score
The CIBIL organization uses certain criteria to evaluate and assign the CIBIL score. The combined effect of these factors is used to determine the credit score of an individual. Here are some of the factors that CIBIL uses to evaluate your score.
Credit history has the biggest role in determining and calculating the CIBIL score. So if you want your CIBIL score to come out good, you need to make sure to pay your bills on time. If you have taken out a loan, make sure to pay its monthly payments on time. Your CIBIL score reflects your repaying capacity so make sure there is no default in loan repayments and you are repaying your monthly installments just fine. Borrower’s repayment behavior plays a major role in your credit history, so you must make sure to maintain a good one.
Credit utilization ratio
Debt-to-credit utilization ratio is another factor that plays an essential role in determining your CIBIL score. This ratio determines how much credit was granted to you, how much you have used, and if there is any debt in your credit history. If you use the entire credit amount each month and fail to repay, along with the interest rate, on time, it might have a negative impact on your CIBIL score calculation.
Financial experts recommend people to use only the required amount rather than spending the entire credit amount. It is also a good practice to repay the credit amount on time and not to wait for any official notice or warning to do so. Debt-to-credit ratio can play a significant role in lenders’ decision-making.
Number of credit inquiries
Yes, the number of credit inquiries also affects your CIBIL score. If you make more credit inquiries, you will have a negative financial impression. CIBIL will think that you are getting more credit inquiries because you are not able to manage your finances effectively. So make sure to think twice before applying for multiple loans at a time.
If you are applying for a loan from multiple lenders or lending institutions at a time, it might leave a negative impact on your CIBIL score. What you can do instead is to wait for your loan application result from one financial institution and then go on to the next.
To have a positive impact on your credit score, it is good to ensure a credit mix. Credit mix refers to having different types of loans rather than taking out the same type of loan again and again. For example, loans can be secured or unsecured; home loans are an example of secured loans while credit loans fall under the category of unsecured loans. There must be a balance between a borrower’s secured and unsecured loans.
If you are taking out the same type of loan multiple types, it shows your inefficiency to handle different types of loans at a time, which can lead to a negative impact on your CIBIL score. A healthy credit mix is preferred by lenders as well.
If some financial crisis has led to a bad CIBIL score, you can take effective measures to correct it. For example, you can pay the full credit amount instead of just paying out the minimum amount. It can have a good impact on your credit report and you can make your low CIBIL score better and increase it in number. Such corrective measures can also help you in the longer run, such as helping you get lower interest rates, etc.
How to check CIBIL score?
If you wish to check your CIBIL score, you can do so online through the CIBIL website. This check is free once every year. You are provided with one free credit score and credit report every year. If you want to view your score more than once every year, then there is some subscription fee based on the package you choose. Follow the below-mentioned steps to check your CIBIL score online.
Step 1: Visit the official CIBIL website.
Step 2: In the top right corner of the menu bar, there is an option of “Get Your CIBIL Score”. Click on that to start the process of checking your CIBIL score. A new tab will be opened.
Step 3: When the new tab opens, click on the “Login” option in the top right corner to log in to your CIBIL account. If you are new to CIBIL and checking your score for the first time, then you must register yourself first and select a suitable monthly plan to get started.
Step 4: Create your CIBIL account by entering required details like name, email address, password, mobile number, date of birth, pin code, your ID number, and the type of ID you are using.
Step 5: Once you have entered all the details, the last step is to click on “Accept & Continue”.
Step 6: The next step is to verify your identity. Enter the OTP sent to your phone number and submit other relevant details as well.
Step 7: Make the payment according to your subscription plan. Upon successful registration, you will be sent a confirmation email.
Step 8: Now that you have successfully registered on CIBIL, you can now log in to your CIBIL account.
Step 9: Navigate to your CIBIL dashboard. There you will be able to see your CIBIL score and report.
Disadvantages of average or poor CIBIL score
A poor CIBIL credit score can definitely affect your overall financial portfolio. Approvals for loans and other financial matters are also influenced. Bad and average credit scores can range from 300 to 700 according to different scoring models. Following are the disadvantages of having a bad or average CIBIL score.
Less approval chances for credit cards and loans
Having a bad or average credit score can reduce your approval chances for credit cards and loans. This can result in many unachieved accomplishments. If you want to take out a house loan, a bad or average credit score can be a hindrance. While a good credit score can help in the quick approval of your loan application, a bad score can do exactly the opposite. Lenders tend to reject loan applications of individuals with low credit scores.
Similarly, if you are applying for a new credit card, your previous credit score is certainly checked and if it’s not good enough, you are less likely to get the new credit card you applied for.
High interest rates and less favorable loan terms
Somehow, you get approved for the loan you applied for, but chances are that you will get less favorable loan terms as compared to borrowers who have high credit scores. For example, you might get high interest rates and annual fees on your loan. In order to avoid such situations and get more favorable loan terms, it is best to maintain a good CIBIL score.
Limited credit card choices
A bad or average credit score can limit your credit card choices. There will be fewer credit card options available to you. Card issuers take notice of your credit score, they can limit an individual’s options due to a bad credit score. So if you’ve got a bad score, it is necessary to take action as soon as possible and work on making your score better in order to have a maximum number of credit card choices.
Tips to maintain and improve CIBIL credit score
Here are a few tips that can help you maintain and improve your CIBIL credit score.
Pay bills on time
If you need to maintain a healthy CIBIL score, you must make sure to pay your bills on time and in full since payment history is the most important factor determining your credit score. If there is a missing payment in your payment history, it will show up on your credit report. Multiple missing or incomplete payments can lead to a bad credit score. So it is the best practice to timely pay your complete bills. But if you cannot pay in full, at least pay the minimum amount so that you don’t have any missed bills.
A good rule of thumb would be to set up autopay for the minimum amount so that there is no possibility of forgetting to pay it. This is helpful if you have trouble remembering to pay your bills each month.
Repay credit dues
It is important to timely repay your credit dues each month and not just let them accumulate in a big pile of dues. If you have any remaining card dues, make sure to pay them back on time. If you keep on repaying only the essential minimum amount with interest, it can lead to late penalty charges and a huge mountain of credit dues. However, if you pay back the full amount every time, it can help in maintaining and improving your credit score.
Keep a low credit utilization rate
It is a bad practice to use your full amount of credit every time. It is recommended to use only 30% of your credit limit if you want to maintain a good credit score. After payment history, your credit utilization rate is the second most important factor in maintaining a good credit score. That’s why it is important to keep a check on your credit limit and use the credit in that limit. If you have maintained a good credit utilization ratio, you can request an increase in your credit limit.
Always check your credit report
Checking your credit report from time to time is a good way of maintaining a good credit score. You can check for any errors that might have gone unnoticed. You can review your credit report to be mindful of any missed or delayed payments. You can contact the officials in case you notice any lack of updates on the report. Reviewing your credit report is an effective way to maintain your CIBIL score.
Make use of credit-mix
Make sure to apply for different types of loans, such as a mix of unsecured and secured loans, to maintain a credit mix. This will help you maintain a healthy credit history and get attractive interest offers. When an individual gets different types of credits, his points increase, resulting in an attractive diversity in his financial portfolio.
Your CIBIL score can have a big impact on your financial life, that’s why maintaining and improving it is of utmost importance. With some simple tips and tricks, you can maintain a healthy CIBIL score and improve a bad one. The process is not always easy, but it’s definitely doable. Hope this guide has made it easier than ever for you to regularly check your score so you can understand where you stand.
Now that you know what factors affect your CIBIL score calculation, you can take effective steps toward improving it. A good rule of thumb is to always keep an eye on your CIBIL score rather than reviewing it at the last minute.