"Demystifying CIBIL: A Beginner's Guide to Credit Scores"

All You Need to Know About CIBIL Scores and Reports -

 

If you want to apply for loan for the first time or you had already applied, you may have heard the term "CIBIL score" thrown around quite a bit. But what exactly is a CIBIL score, and why is it so important?

In this beginner's guide to credit scores, we'll explore what a CIBIL score is, how it's evaluated and what you can do to maintain a healthy score.

What is a CIBIL score?

A CIBIL score is a three-digit number that represents your creditworthiness. It's evaluated by the Credit Information Bureau (India) Limited (CIBIL) based on your credit history, including your credit card payments, loan repayments, and other credit-related activity.

The CIBIL score ranges from 0 to 900, with a higher score indicating a better credit history and a lower risk for banks and NBFC. A score of 750 or above is generally considered good, while a score below 650 may make it difficult to for processing any loan request raised by the customer be it individual or business entity. However a “0” cibil scores implies that the individual doesn’t have any credit history with the cibil department.

How is a CIBIL score evaluated?

A CIBIL score is evaluated based on several factors, including:

1. Payment history: Your track record of making on-time payments on your loan accounts.
2. Credit utilization: The percentage of your available credit that you're currently using.
3. Credit mix: The types of credit accounts you have, such as personal loans, business loan or home loans, credit card etc.
4. Length of credit history: How long you had your loan accounts opened and made timely payment.
5. New credit enquries: The number of times you've applied for loans or credit recently.

Each of these factors is given a different weight in calculating your CIBIL score. Payment history and credit utilization are typically the most important factors, followed by credit mix, length of credit history, and new credit inquiries.

What can affect your CIBIL score?

Several factors can have a negative impact on your CIBIL score, including:

· Late payments or missed payments on your loan and credit accounts.
· High credit card balances or maxed-out credit cards.
· Defaulting on a loan or having a loan account written off.
· Applying for too much loans at once can increase your enquires numbers which can make you look like a risky borrower.
· Errors or inaccuracies on your credit report.

How can you maintain a healthy CIBIL score?

To maintain a healthy CIBIL score, it's important to:

· Pay your EMI on time and in full

· Crediting your account on due dates for servicing of Interest in your cash credit and   overdraft limit facilities.

· Keep your credit card balances low.

· Limit your applications for new credit.

· Monitor your credit report regularly for errors or inaccuracies.

If you do have a low CIBIL score, there are steps you can take to improve it over time. For example, you can:

· Pay down high credit card balances.
· Set up automatic payments to ensure you never miss a payment.
· Limit your credit applications.
· Dispute any errors or inaccuracies on your credit report.

In conclusion, your CIBIL score plays a crucial role in your financial life, affecting your ability to qualify for loans and credit cards, as well as the interest rates you'll pay on those accounts. By understanding how your CIBIL score is calculated and taking steps to maintain a healthy score, you can put yourself in a stronger financial position for the future.