Are you looking for a Home Loan or any other type of loan? Are you looking to buy a credit card? Are you looking for a lower interest rate? A common answer to all these questions is having a good CIBIL score to get a better interest rate and quick disbursement.
What or rather who is CIBIL?
The Credit Information Bureau (India) Limited (now known as TransUnion CIBIL Limited when TransUnion acquired 92.1% stake in CIBIL) is credit information company having repository of consumer credit information. The Company was incorporated in 2000 based on recommendations by a Reserve Bank of India (RBI) Committee. CIBIL provides risk scoring models for Banks and Financial Institutions. At present, CIBIL has over 5000 members – all leading banks, financial institutions, NBFC’s, housing finance companies and they maintain credit records of millions of individuals and businesses. Apart from CIBIL (which is the most popular), there are 3 other credit information companies licensed by RBI – Experian, Equifax, and Highmark.
What is Credit History?
In order to borrow money / take a loan, one needs to ensure that he or she is eligible for a loan and is credit worthy.
Banks or financial institutions will first check your credit worthiness.
Now how is credit worthiness checked? Through your credit history.
How is credit history checked? Through your credit report from one of the above 4 credit agencies who provide a credit score.
This credit report is like a report card which contains the credit history of the individual. This report contains data from various sources like banks, credit card companies, and collection agencies. The individual’s credit score is based on the algorithm applied to the credit information available from these sources to arrive at a particular credit score.
What is a credit score?
Credit Score is like marks in an examination, the higher the better. The score creates a first impression for the lender. The higher the score, the better chances of loan approval and at a better interest rate too. Hence, lenders use credit score as a determinant of the credit risk in lending to an individual or a business.
While there are other agencies apart from CIBIL, but CIBIL is the most popular one and the credit score is many a times used interchangeably used as “CIBIL score”. Credit score is a 3-digit score between 300 to 900. Generally, a CIBIL score above 700 is regarded as the best and an individual is able to borrow much easily.
Factors that impact the credit score?
Payment History: Delay in EMI / credit card bills impact the credit score negatively.
Credit Mix of secured and unsecured loans. Higher unsecured loans also impact the credit score.
Credit Utilization: It is the % of credit actually used. A credit utilization of less than 30% is ideal. A higher ratio means that the individual is using too much credit and it affects the credit score.
Depth of credit history: The duration of the credit history i.e. the time duration from oldest credit account to now matters. The longer the history, the better the credit score.
FinFact:
How to improve your credit score?
Repay your credit card bills on time.
Do not miss on making any EMI payment. Always pay your EMI dues on time.
Never default on any loan.
Do not take multiple loans. First complete the tenure before you jump on to borrow more.
Maintain a health mix of secured (like home loan) and unsecured loan (like personal loan). Higher unsecured loan may be viewed negatively.
If one does not have a credit history, borrow a short tenure loan and repay the same on time. This will help to build a credit score.
The last but not the least, have a proper repayment plan for any loan which you take.
Based on the credit score, many financial institutions have a pre-approved loans available (be it home loan or personal loan or educational loan or any other financial product). Review your credit score regularly, especially before availing any loan to avoid last minute shocks. A good score makes the process of borrowing very smooth and easy. Hence, just like maintaining good personal hygiene, maintain a good credit score as well! Why wait, click on the link to check your healthy credit score 😊.
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