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 Cibil Score Range is
considered a good score and Bad score?
CIBIL 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 Score Range 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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