What, if your CIBIL score is high? Why the CIBIL score is so important? If you are looking for answers to these questions, we’ve got the answers ready for you. A credit score is a 3-digit score given by any of the credit bureaus - CIBIL, Experian, Equifax or CRIF High Mark, based on your past and present credit behavior. This can be anywhere between 300-and 900, with higher numbers indicating responsible credit behavior trends.
A personal loan is one of the most common borrowing options for people who are looking for fast access to cash for several personal reasons. However, because this loan is collateral-free, lenders must verify the credibility of the applicant. In this regard, one of the first things to be considered by potential lenders is the credit score of the loan applicant.
All lenders checkthe CIBIL score of the borrower before approving your loan application. Thus, a high CIBIL score is essential to get loan/credit card approval. But there are many more benefits associated with a higher credit score.
What is CIBIL Score?
The CIBIL score is a three-digit figure between 300 and 900. It assesses your ability to repay the amount borrowed. A score of 750-900 is always considered the best. To have greater access to credit products such as credit cards and loans, your score needs to be as close to 900 as possible. A good CIBIL score indicates that you have been a good and responsible borrower.
A higher CIBIL score indicates greater creditworthiness because of responsible prior credit behavior and a solid payback track record. As a result, the lender's default risk is reduced. Although credit score is not the only factor to determine an individual's eligibility for getting a personal loan, home loan or credit card, it is one of the first factors considered by lenders while reviewing loan applications. A lack of credit history or a low credit score raises concerns about an individual's ability to repay because the lender may not assess the risk or consider the applicant a high-risk borrower.
List of advantages of having a good and high CIBIL score?
- Low-interest rates
Applicants with higher credit scores get lower interest rates. If you have a high credit score, lenders will offer you a comparatively lower interest rate for getting credit such as a personal loan, home loan or credit card. Even a half percentage point increase in interest rates can impact your EMIs and, consequently, your finances. Thus, loans with low-interest rates are one of the benefits of a high credit score.
- Loan with long term
If you have a high credit score, you can get a loan with a longer repayment period. Opting for a longer-term loan will result in lower monthly payments. This will help you in reducing your repayment burden, thereby enabling you to repay the loan amount on time.
You can check your CIBIL score online by visiting the official CIBIL website and submitting the online application form. You also need to pay a small fee for this service sometimes. You must understand how to check your CIBIL score as it is a major deciding factor in loan application approval.
- Fast Loan/Credit Card Approval
If you have ahigh CIBIL score, then you can get a credit card with a higher limit. However, make sure that you do not overuse your credit card and that you make your credit card payments on time. If you do not comply, your credit score may suffer in the long run.
If you have a good credit score, you will be eligible for additional bonuses and incentives on your credit card in addition to a higher credit limit.
- Additional credit card benefits:
Before approving a credit card application, lenders look at your EMI and income ratio to measure your repayment capacity and check your credit profile by reviewing your CIBIL score and report. A high CIBIL score indicates good credit behavior and will help lenders make important underwriting decisions such as setting a higher credit limit on your credit card or offering a reward program such as cashback.
- Better chance of higher limit on loan
A higher loan amount means increased risk for lenders. So, even if a loan is approved for a person with a low credit score, the quantum of loan provided may be much less than the loan applied for by them.
- Increase your opportunities toget pre-approved loans from banks
A pre-approved loan from the bank is a great way to get a personal loan from the bank instantly. However, these loans are not given to every customer. There is a good credit score threshold and a lot of inspection in the form of your account balance before issuing a pre-approved offer. If you have a good credit score, your chances of getting a 'pre-approved' and 'personal' loan from your bank or credit card may be higher.
- Better negotiating power with your lenders
All lenders prefer to give loans to creditworthy customers who will repay their loans promptly. If you are a customer with a high CIBIL score, you can become a desirable borrower. This can give you an edge over other customers and, in the process, you can negotiate with the lender for a better interest rate or lower processing fee.
Ways to improve your credit score
Your credit score gives a proper indication of your credit report. Many factors affect your credit score including your repayment history, credit mix, credit utilization ratio, age of credit history, etc. The following is one way that can help you improve your credit score:
- Maintain a clean repayment track record
Always pay your credit card dues and loan EMIs on time and in full. Late payments dues and missed payments can affect your credit score. Ensuring timely repayment of loans over a long period positively affects your credit score as it indicates responsible credit behavior over time.
- Maintain a low credit utilization ratio
The credit utilization ratio is the ratio of credit utilized to the total available credit limit. Maintaining a low credit utilization ratio of 30% or less indicates less dependence on credit and lower repayment burden and thus higher creditworthiness. This in turn positively affects your credit score and increases your chances of securing additional credit.
- Alwayscheck your credit report for errors
Check your credit report regularly for administrative errors. These should be communicated and rectified in a time-bound manner using the prescribed dispute resolution process. This can help you to increase your credit score.
- Avoid multiple loan inquiries/applications at once
Avoid making multiple loan applications and inquiries with multiple lenders at the same time. It reflects you as credit hungry and increases the number of hard inquiries on your credit report which adversely affects your score.
You must build and maintain a high credit score over time. A high credit score will ensure that you get access to credit at a low-interest rate, and get pre-approved loans offers and other beneficial terms from lenders.