Everyone needs funds, whether it may be for business growth or personal purpose. Financial institutions are lending institutions which provide loans to the needy persons.

If we think from the bank’s point of view, suppose one of its borrowers made a fraud in payment of loan.

This may cause heavy losses to the bank and next time the bank will think twice before lending to the person, so here combine the concept of cibil score for loan.

Before, knowing how to improve cibil score, you must know the complete knowledge about cibil score, how it works in our life. We are explaining you in the following paragraphs.


    What is the meaning of cibil score?

    Cibil score is a 3-digit number assigned by credit bureaus to an individual based on his credit profile and past repayment track record.

    Banks refer to this credit score of an individual before accepting a loan application, so for an individual higher score depicts better creditworthiness and lower score depicts that individual is not credit worthy.

    In lower scores, Banks may hesitate to give loans to that person.

    Who assigns a cibil score?

    In India there are 4 credit bureaus which calculate credit score. They use algorithms to calculate the best score of an individual.

    Credit Bureaus in India

    Score Range

    Cibil Score

    Equifax score

    Experian score

    Highmark score

    300-900

    300-850

    300-900

    300-900

    Most popular credit bureau is CIBIL Score which was established in 2000.

    Which score is considered a good score and Bad score?

    Score range of 700 and above considered as good credit score by banks in India. An individual having score above 700 will easily get a loan.

    If an individual has scored more than 800, then he can even bargain for a lower interest rate for loan.

    Good score represents good credibility of a person and borrowers are the assets of a bank, so they prefer to give loan to that person which is having good cibil score, which insist the bank to trust on such person that can pay all the installments without any delay.

    Bad score i.e. less than 700 can create difficulties in taking loan. No bank trusts such a person. In this case, if a person gets a loan, then the loan would be of higher rate of interest. Banks charge higher interest to cover their risk for default in future.

    Good cibil report rating in India

    Banks prefer higher scores for unsecured loans as compared to secured loans.

     

    What is the importance of a good cibil report?


    1.  Easy for taking secured as well as unsecured loan

    Cibil is checked by banks for both secured loan like Home Loan, Loan against property as well as unsecured loan Like Credit card Loan. If you give security for your loan then also your cibil score is check and bank gives loan only if your credit score is good.

    In unsecured loans where the risk for banks is high in that case banks want good cibil score. Having a bad score may result in rejection of loan application.


    2.  Lowering of Interest Rate

    If your cibil score is good, you can easily bargain for lowering the interest rate on loan.

    Borrowers are assets of the bank, they want customers who can pay the loan without any delays so they prefer customers with good scores.

    Borrowers can make the benefit out of it by bargaining for a lower interest rate.


    3.  Large amount of Loan

    If your credit score is good you can ever demand a loan for a large amount whenever you need. Any bank is ready to give a loan to such a creditworthy customer.


    4.  Easy for getting best credit card at lower interest rate

    Credit card companies also check your cibil score before giving you a credit card, if your cibil score is good you can easily get a credit card at lower interest rate.


    5.  Miscellaneous benefits

    Various other benefits are also received to an individual having good credit score namely:

    • Cash back offers
    • Reward points on credit cards
    • Lowering of Interest rate
    • Higher tenure of loan
    • Discounts etc.

     

    What are the reasons for lowering the Cibil Score (bad Score)?


    1.  Bad record of repayment

    Your credit score affects the past repayment record. Like default in timely loan payment, overdue and loan defaults.

    E.g. suppose you had taken a loan from bank ABC ltd. And you made the default in repayment say you have not paid some installments. So this affects your cibil score. Due to default your cibil score goes down.

    So, if you again want a loan. Banks will not be able to rely on you because of your bad credit score and your loan application may be rejected for loans or received at a higher interest rate.


    2.  Many numbers of Loans

    If you have taken so many loans which are not closed yet and you are going to take one another loan.

    In such a situation you will see so many problems in taking out loans. Because of so many loans your credit score goes down. It seems that your financial health is not good.

    That's why you have taken so many loans and you are not able to pay them on a timely basis.


    3.  Earlier rejecting of Loan application

    If there is rejection in a loan application with one bank then another bank will not easily ready to provide a loan because of earlier rejection.


    4.  More spending on credit card

    If you easily maintain a limit of expenditure but suddenly you start spending large amounts then it seems your hungry behavior, which affects your cibil score.


    5.  Errors at the Bank level

    Bank shares customer information with the credit bureaus. Sometimes banks share wrong information that’s why cibil scores compute wrong.

    How to improve Cibil score?

    1.  Do not delay your payment

    If your delay only one installment evens it also has an impact on cibil score. So it is better to repay on time so that problems will not be faced in future.


    2.  Higher proportion of unsecured loan

    If you have a mixture of loans i.e. the proportion of unsecured loans is higher than secured loan, it also impact on cibil score.

    In secure loan banks have the security so in that case leniency can be given to cibil score, so it’s better to have more proportion of secure loan instead of unsecured loan.


    3.  Do not open so many loan accounts

    It is better to not open so many loan accounts, it seems your poor financial conditions and your inability to repay, so it is better before taking a new loan you must close the older one. 

    You must close the loan account which has a small amount of loan outstanding.


    4.  Do not maximize / overuse credit card limit

    It is a smart move not to maximize the use of credit card limits, because it seems your suddenly hungry behavior and your poor financial condition, so must make small purchases on your credit card and pay them on time.


    5.  Do not opt for credit settlement

    Credit settlement means when an individual is not able to pay his installments then he opt for settlement.

    In settlement he pays the mutually agreeable amount which is less than actual dues. This transaction has a very bad impact on cibil score. Instead of this you should try to close your account completely.


    Conclusion

    Now, you are fully understood the concept of how to improve cibil score, its importance and how to maintain cibil score. Our opinion is to check cibil score regularly.

    Hope this article useful to you.


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