While the banking sector has grown and there are many credit facilities for borrowers, this does not mean that anyone qualifies to get a loan. Lenders that are in business work towards reducing their losses. To this effect, the guideline that they use entails checking your CIBIL score before approving any loan. The intention is to make sure that the borrowers who avail the loans are creditworthy and not defaulters.
What is CIBIL score?
CIBIL stands for Credit Information Bureau India Ltd. Its prominent role is to give credit reports of individuals. Where does the institution get all the reports from? Well, it acquires individual credit information from different lenders and then uses it to create a score for each. It can be defined as a numerical value that ranges from 300 to 900. The value indicates one’s ability to repay loans. Defaulters generally have a lower CIBIL score, while creditworthy individuals have higher credit scores, usually 750 and above.
Your CIBIL score is further divided into different ranges depending on loan repayment reports from banks. An individual who has never taken a loan before is given a NA or NH score. NA expands to not applicable, while NH stands for no history. A score below 750 is considered a low score.
If your CIBIL score falls in this range, you are a high-risk borrower and the possibility of you being a loan defaulter is high. Lenders would interpret this as an indicator that you have not repaid loans in the past on time. It is difficult to get a personal loan with low CIBIL score from financial institutions; however, some lenders still provide a personal loan with a low CIBIL score.
An average CIBIL score ranges from 550 to 749. As much as this is considered fair, some institutions still think of this group as risky and avoid giving them loans. With persuasion, one can get a personal loan with low CIBIL score from other lenders. They can access loans from any lender, as they are not regarded as high risk. An excellent CIBIL score ranges from 750 to 900.
Why you need a CIBIL score
Now that you know what a CIBIL score is, here is why you need to have one –
- Proof of creditworthiness – The CIBIL score acts as proof of creditworthiness. If you have a low CIBIL score, lenders will consider you not worthy, while if you have a good or high score ranging from 750 to 900, you are in the good books and worthy of credit.
- Easy access to loans – A good CIBIL score will make it easier to get a loan from any lender. It also allows you to access bigger loans.
- Lower interest rates – With a high CIBIL score, you will be able to negotiate for better interest rates on loans.
How to improve your CIBIL score
Whether your CIBIL score is NA/NH, 350-549, or 550-749, you can still improve upon it. CIBIL scores of individuals change depending on how good or bad your loan repayment, and credit history is. You can move from a bad score to a good one or vice versa if you default or get delayed while making repayments. To improve your score, here is what you need to do –
- Get a loan – If you have never taken a loan before, your CIBIL score will be NA/NH. You can improve upon this score by getting a credit facility and making prompt and timely repayments.
- Pay your loans – The reason why you have a bad score could be because you have defaulted on paying debts. When these loans are cleared, your CIBIL score is sure to improve.
- Take more loans – Your CIBIL score is calculated based on the loans you take and how well you pay them. The more you take and pay your loans on time, the higher your CIBIL score gets.
How to check your CIBIL score
Technology has made things easier. Just like you find out what is CIBIL score online, you can also check your CIBIL score. To find out your score online, you must have internet access. You can then log on to your preferred lender’s website, like Bajaj Finserv, and check your CIBIL score for free.
You can get a free CIBIL score from several institutions. You can search online and take advantage of the free offers. While getting a personal loan with a low CIBIL score is possible, it comes with a high-interest rate and may not be substantial. Your understanding of what is CIBIL score can help you manage this aspect of your credit history and render you suitable for applying for a loan in the future.