As you know, the CIBIL score (Credit Information Bureau (India) Limited) is a three-digit number ranging from 300 to 900, representing your creditworthiness based on your credit history. Lenders use this score to see how risky it is to lend you money.
Tip: A higher CIBIL score, typically above 750, is seen as ideal by lenders.
Did you know? A high CIBIL score can help you negotiate for better interest rates. Banks and financial institutions reserve their best interest rates for customers with excellent CIBIL scores, which usually means scores above 750.
Why It Matters: With a high score, you’ll save significantly on interest, especially on long-term loans like home loans.
Example: A person with a score of 800 might get a loan at 8.5% interest, while someone with 650 could face an interest rate of 10% or more.
Every time you apply for a loan or credit card, lenders make a ‘hard inquiry’ on your CIBIL score. Too many of these inquiries within a short period can lower your score temporarily.
How It Works: Each hard inquiry stays on your report for two years and can slightly lower your score.
Solution: Avoid applying for multiple credit products within a short time. Spread out your loan applications and be careful about which credit options you choose.
Many people believe that avoiding credit cards will make their finances healthier. But, not using any credit products at all means there’s no credit history to show lenders. This lack of data can cause to a low or even non-existent CIBIL score, making it harder for you to secure a loan when you actually need one.
Why It Matters: CIBIL needs information to check your creditworthiness. If you don’t use credit, there’s no record for them to evaluate.
Solution: Use a credit card now and then and pay off the full balance each month. This helps build a good credit history without creating debt.
Even one missed or late payment on a loan or credit card can hurt your CIBIL score. Late payments stay on your report for 36 months and can lower your score a lot. This can have long-lasting effects, especially if you plan to apply for a home or personal loan.
Example: Missing an EMI of ₹5,000 might not seem like much, but it signals lenders that you may struggle with timely payments, thus lowering your CIBIL score.
Solution: Set up automatic payments to avoid accidental delays, and make sure you keep enough funds in your account for scheduled EMIs.
If you take a loan with a co-applicant, like a spouse or sibling, any late payments or defaults will impact both of your CIBIL scores. Many people don’t know this, but both applicants share responsibility for making payments on time.
Why It Matters: A joint home loan might increase your eligibility, but both parties are impacted if payments are missed.
Important Note: If your co-applicant has a low CIBIL score, it could affect your loan approval chances, as lenders will consider the combined risk.
| Factor | Impact on CIBIL Score | Solution |
|---|---|---|
| Loan Interest Rates | High scores get better rates | Keep a score above 750 for better negotiation power |
| Multiple Loan Applications | Can lower score due to hard inquiries | Space out loan applications and use soft inquiries for rate comparisons |
| Credit Inactivity | Low or no credit history leads to a poor score | Use a credit card responsibly to build a positive history |
| Delayed Payments | Lowers score and stays on report for 36 months | Set up auto-pay and keep funds ready for EMIs |
| Joint Loans | Missed payments affect both applicants’ scores | Ensure both parties are financially prepared to make timely payments |
Your CIBIL score is more than just a number; it’s a key part of your financial journey. By understanding how it works and knowing what affects it, you can take control of your credit. Simple habits like paying bills on time, avoiding unnecessary loans, and keeping a good credit history can help keep your score high. Making informed financial choices is the key to a healthy CIBIL score!
Ideally, check your score once every six months. This allows you to spot any unexpected changes and monitor improvement if you're working on building it.
Not always. Closing older accounts can reduce your credit history length, which may slightly lower your score. Instead, keep old accounts open but use them minimally.
Yes, a score of 750 or above is generally considered good and can help you get loans at competitive interest rates.
Pay down outstanding credit card balances, avoid new loan applications, and ensure on-time EMI payments. Reducing debt-to-credit ratio (using less than 30% of your credit limit) also helps.
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