Your CIBIL score is a three digit number, determined after evaluating your credit report. The number holds a high importance, especially when you apply for unsecured loans such as personal loans, as you don’t have to pledge collateral to avail funds. Here, your CIBIL score comes into spotlight, helps lenders gauge your creditworthiness, and therefore, determine your eligibility. In fact, most lenders have a minimum CIBIL score that they require you to possess, so it is important to check CIBIL score before applying.
Further, knowing the intricacies of a CIBIL score can give you insights into areas you need to improve on. So, to understand the ins and outs of a CIBIL score and its important elements, read on.
What role does a CIBIL score play in your loan application?
Simply put, your CIBIL score indicates your ability to repay the loan. TransUnion CIBIL assigns a score between 300 and 900 to your profile, and the higher you score, the more creditworthy you are deemed to be. In fact, a high score speaks to your experience of handling different kinds of debt, secured and unsecured, efficiently. CIBIL score forms a crucial part of loan eligibility criteria and certain lenders may have a minimum score requirement. Typically, it is recommended that you maintain a score of around 750 to get a personal loan or a home loan with ease.
Which factors impact the calculation of your CIBIL score?
Typically, there are 4 main factors that determine your CIBIL score. They are as follows.
- Payment history: Around 30% of your score is dedicated to your ability to repay debt. Credit card bills and loan EMI payments are included when examining this aspect.
- Credit forms and duration: A long, spotless credit history, including a mix of unsecured and secured credit indicates that you’re an experienced borrower. This accounts for 25% of your score.
- Net credit exposure: The quantum of credit availed is evaluated here and contributes to 25% of your score. Handling high-value loans indicates sound financial management skills.
- Other factors: The balance 20% takes into account your credit behaviour, credit utilisation ratio and aspects such as hard inquiries.
Know what your CIBIL score means
To know what your score indicates after you check CIBIL score, refer to the following guide.
NA/NH: This is assigned to your profile if you’re never handled credit before.
300-549: This is a poor score and is assigned to your profile if you have a history of defaults and unpaid dues. With this score, you are likely to get rejected by lenders as your profile is deemed risky.
550-649: This is an average cibil score and indicates you have some experience with credit. You must improve your score by working on the factors that determine it before applying for credit.
650-749: This is a good score and lenders will usually accept credit applications based on it. However, this isn’t the best score you can achieve and so, you may not have the power to negotiate favourable loan terms.
750-900: This is an excellent score and is ideal to obtain access to loans and other forms of credit. Certain lenders may even offer more economical interest rates and a higher loan amount if you have this score.
What is the difference between a soft and hard credit enquiry?
The main difference between the two types of enquiries is that soft enquiries may not impact your credit score, whereas hard enquiries reduce your score by a few points. An example of a hard enquiry is when you apply for a loan and that of a soft enquiry is when you check your credit report. Therefore, it’s best not to apply for loans from multiple lenders simultaneously to avoid too many hard enquiries.
Given the importance of this metric, you should review it from time to time. In fact, TransUnion CIBIL facilitates CIBIL score checks free of cost, once a year. Knowing your score before making a borrowing decision lets you know if you’re in the green, or if you need to increase your CIBIL score first. Once you have a high CIBIL score, you can apply for loans such as the Bajaj Finserv Personal Loan with ease. This collateral-free loan offers funding of up to Rs.25 lakh credited to your account within 24 hours of approval.
Further, you can repay it over a tenor of up to 60 months and use the flexi loan facility to make multiple withdrawals from your sanction while you’re on the go. It also levies interest only on the amount you utilise and allows you to pay interest-only EMIs during the initial part of the tenor. The latter can help you reduce your instalments by up to 45%.
Once you check CIBIL score, remember to check your pre-approved offer to access instant financing via a customised loan deal.