TransUnion CIBIL, India’s leading credit bureau handles one of the largest repositories of consumer credit information globally. They have over 5000 members including banks, NBFCs and financial institutions. They maintain records of over 1000 million individuals and enterprises.
They collect, analyze and deliver credit histories of millions of individuals and businesses which allows financial institutions to make decisions about offering them finance. Lenders are able to make quick decisions and manage risks better. The detailed credit reports that they provide are useful to both lenders and borrowers and improve the efficiency of the financial ecosystem.
What is a CIBIL score check?
TransUnion is one of the four credit bureaus in the country that generate credit reports and credit scores. CIBIL score check is an important indicator used by lenders to decide the creditworthiness of a borrower. It is a numerical score between 300 and 900 generated by TransUnion CIBIL Limited based on the credit history of the borrower. A CIBIL credit score between 300- 549 is considered poor, a score between 550-749 is fair while a CIBIL credit score between 750 – 900 is good.
A CIBIL score check is a basis for most lending decisions as it gives an accurate picture of the borrower’s recent credit history.
Why should borrowers do a CIBIL score check?
Knowing your CIBIL score gives you an advantage when it comes to applying for a loan. It is important to run a CIBIL score check periodically to check whether it is good enough to get a loan. Sometimes the credit report may be inaccurate as it may reflect incorrect transactions against your name. It is possible that you may have paid off a loan in full but forgotten to collect the No Dues Certificate. The loan may continue to reflect as open against your name and damage your credit score as you are no longer paying it. In such circumstances, it is important to generate a CIBIL score check regularly and get the errors rectified.
Why do Lenders do a CIBIL score check?
On receipt of a loan application, the first test that lenders do is check CIBIL score by PAN card. This gives them a quick snapshot of the borrower’s creditworthiness. Most lenders do not entertain low CIBIL scores as it reflects poorly on the credit behaviour of the applicant. Nobody wants to lend to a client who has a history of a payment default. A good credit score over 750 on the other hand reduces the lender’s efforts. He can safely approve the loan application as there is not much risk of default.
How can a borrower improve his credit score?
Improving your credit score is always desirable as it can give you access to better credit terms. Here are some steps you can take to improve your credit score –
Never default on a payment :
Set reminders and ensure that you never miss a payment. A delay in payment of EMI or credit card due will lead to a penalty which will diminish your credit score. If you are the forgetful kind, you can either set yourself a reminder on your calendar or set up an auto-debit in your account so that you never miss a payment.
Holding on to your first credit card helps you to increase your credit history
Congratulations if you are still holding on to your first credit card. If you are paying your bills in full on time, you will have a very good credit history and this can only improve with time. You will only need to ensure that you do not default on payments.
Do not use more than 30% of your credit limit
Your credit score is inversely proportional to your credit utilisation. If you reach close to your maximum credit limit, your credit score takes a hit. So if you want to maintain a good credit score you need to limit your credit usage.
Choose the longest tenure on your loans
Try and bargain for the longest tenure on your loans so that the EMIs are low and fit into your monthly budget. This will help you to pay your EMIs on time and avoid default.
Do not juggle too many debts at a time
It is risky to juggle too many debts at a time if you cannot handle the multiple EMIs. Keeping track of the various amounts and dates may be quite a chore and you may miss out on some which could adversely affect your credit score. It is best to take one loan and repay it before taking another. Taking and repaying a loan without default can boost your credit score.
Check your CIBIL Report periodically and fix errors
You should do your CIBIL score free check done regularly and generate a report. You can check the report for any errors and get them rectified. This will help you when you try to get a loan. Errors could be due to incorrect names or addresses. It is also possible that you repaid a loan but failed to collect the No Dues Certificate. This could lead to the loan still being reflected as outstanding against your name and reducing your credit score. You will need to talk to the lender and get this certificate collected. Else it could hinder your chances of getting a loan.
Choose different forms of credit to create a credit history
If you have not taken a loan, you would not have a credit history. When you want to create a credit history, you should take different forms of credit- secured and unsecured loans of different tenures. This will help you to build a healthy credit score over a period of time.
It is not possible to improve your credit score overnight. You need to display clean credit behaviour for over 6 months to a year to see your credit score improve.
Do not apply for fresh loan immediately after rejection
If you apply for a fresh loan soon after being rejected for one, there is a chance of your credit score getting affected. Please allow at least 6 months for the credit score to improve before trying again.
Do not apply for multiple credit cards
Do not increase the number of credit cards. It will become hard to keep track of due dates and payments. If you miss a payment, it will affect your credit score adversely.
What are the benefits of having a good credit score check?
If you run a free CIBIL score check and find that your score is above 750, you can celebrate. It indicates that you can enjoy several benefits that a good credit score is associated with.
Primary indicator of creditworthiness
Your credit score is the first indicator of your creditworthiness to the lender. Once you submit your loan application and upload your details, the lender will check CIBIL score by PAN Card. This will provide the lender with the basic details of your credit history based on which your loan application will be rejected or taken forward.
Approval of Loan Application
If you have a CIBIL score of 750 or above, your loan has an over 95% chance of getting approved. A high credit score leads to faster loan approvals as the lender is convinced about your repayment capacity and doesn’t need to run further checks.
Better Negotiation Power
If you have a good credit score, you have better bargaining power with lenders. You can compare rates and find the best rates since all lenders will be happy to lend to you. You can call the shots and get a better deal in terms of interest rates, tenure, processing fees etc.
Estimated Loan Amount
The loan amount is calculated based on your eligibility which is a function of your credit score as well. If you have a high CIBIL score, you may be eligible for a higher loan amount and vice versa.
Longer Tenure Loan
A lender may be more willing to provide a longer tenure loan to a borrower with a high CIBIL score since he believes in your repayment capacity. A longer tenure can keep the EMIs loan and may be convenient to the borrower
If you have a poor CIBIL score but still want a loan what do you do?
If you have a good steady income, you can use that to convince the lender to give you a personal loan. Credit score is one of the factors that determine loan approval but not the only one.
If you can prove that you have filed your tax returns regularly, it will leave a good impression on the lender
If you have an adequate bank balance, the lender can be convinced about your repayment capacity and offer you a loan. Credit score could have been messed up due to a solitary incident of forgetfulness. So you can use the bank balance to prove your repayment capacity.
If your credit score is low you can put in a joint loan application using your parent, spouse or sibling with a better credit score as a co-applicant. This may improve your chances of getting a loan.
Reduce the loan amount
If your credit score is not high enough to get the loan amount you wanted, you can reduce the loan amount to improve your chances. The lender may charge a higher interest rate to cover his risk.
A CIBIL score check is your gateway to a better line of credit and easy access to financial products. The better your credit score, the more opportunities will come your way. Managing your finances with discipline and leveraging debt smartly will help you maintain a good credit score that can open doors when the need arises.
Get your CIBIL score free right here.
What happens when you get a free CIBIL score and Report?
You get to access CIBIL Dashboard and refresh your score annually. You can check your credit report, identify frauds and inconsistencies and report them. You can get personalized loan offers tailored to your credit score.
It is highly recommended that individuals check their CIBIL score for free regularly and monitor their credit history. This will help them avoid nasty surprises when they apply for a loan. A Credit score check is a simple way of knowing if your credit history is on track and you are managing your finances well. In fact, youngsters on their first job should build the habit of creating a good credit history. They can start by purchasing an item on EMI or using a credit card and paying it off on time. It will teach them to manage their monthly payments and develop good credit discipline.
Good credit history is a reputation you gather over time. A good credit score is similar to financial goodwill. It will always stand you in good stead and come to your help when the need arises. Lenders will be happy to assist you when you need a line of credit if your credit score says you can be trusted. That is the power of a three-digit number called the CIBIL Score. Never take it lightly.