Why is a good credit score important for getting a loan or credit card? Why people give so much attention to it? Are you thinking the same way? Well, they calculate the credit score on your behaviour that you had with your credit. But before we get into the details, let’s find out what are that 5 important things that a borrow needs to know about a credit score.
What is a CIBIL score?
CIBIL score is a three-digit numeric number made to monitor the creditworthiness of the borrower. It is calculated by the leading credit bureau of India, TransUnion CIBIL. This score ranges between 300-900. There are several factors are needed to project a credit score, such as past credit behaviour, credit exposure, type of credit, and loan enquiries of an individual.
Why is CIBIL score important?
A CIBIL score plays a vital role in testing the creditworthiness of an individual and helps a lender sanction a personal loan. By looking at the credit score, the lender decides if a person can repay the loan. Normally, a credit score of 750 or above is considered a good credit score, hence, increase the chance of securing a loan. On the other hand, a person having a low or poor credit score considered as a high-risk applicant, hence, sends a wrong signal to the lender. An individual having a good credit score has a better chance to secure a personal loan on a lower rate of interest.
For example, if you apply business loan from online marketplace or by visiting the branch, you must have a credit score of 750 to get the loan at a lower interest rate.
What are the ways to keep it healthy?
Here are the most common ways to keep a credit score:
- As long as you pay your credit bills on time, your credit score remains intact. Making timely payments not just improves your credit ratings but also increases your creditworthiness and helps you get a loan easily. For instance, the average personal loan interest rate starts from 10.75% and goes to 24%, if an individual has a good payment history, he can avail a personal loan at a lower interest rate.
- The borrower must keep one thing in mind that a balanced credit mix is required to get his credit score healthy. For a better credit mix, one should not have unsecured loans above 30%. The good credit mix of secured loans and unsecured loans helps you save interest.
Assume you take a business loan and your credit mix is unbalanced then your business loan eligibility may affect.
- Borrower should not apply for multiple loans in a short span, as these inquiries are considered as hard enquiries;hence, your credit score gets some deductions each time. However, if you want to compare the various loan schemes from various lenders, you can do it without making a hard inquiry. It is important here that, if you want a business loan by a government bank or any private bank, your credit report should not have multiple loan enquiries otherwise any bank will reject your loan application, and your credit score will damage too.
How to find a CIBIL score
Getting a CIBIL is simple if you follow these steps to get your credit score.
- Visit the website: CIBIL.com
- Create an account by generating your username, password, your name, your mobile no.
- Enter your personal details such as DOB, Aadhar number, PAN, and address.
- Verify your details by entering the OTP received on your mobile number.
- Accept terms and conditions
By following the above steps, you can see your CIBIL score.
How to read a CIBIL score
We can see the credit score in the Accounts and Enquiries sections of the credit report. Apart from the credit score, the credit report has a lot more in the various sections:
- Personal information: This section contains the name, date of worth, gender, and identification numbers such as PAN, address, and contact details.
- Contact information: This section includes employment information and income details submitted by the various lending institutions.
- Account information: This section contains the details of your past credit, a type and several credits.
CIBIL score plays a crucial role in deciding the eligibility criteria of a borrower. The one has a good credit score has the better chance of securing a loan or credit card compared to the bad credit score holder. Be it a car loan, personal loan or a home loan, the lender always looks for a borrower who has a good credit score. Hence, you know the importance of the credit score, keep it healthy and increase your chances of getting a loan. Keeping a credit score healthy and sound is simple, as there is just a caution needed to keep it unharmed.