The CIBIL score acts as a decisive component in the approval process of loans and credit cards throughout India. The probability of securing home loans or personal loans, or credit cards, gets better when you have a high CIBIL score, while poor scores likely lead to loan rejection or premium interest rates.
What a CIBIL score stands for involves three main elements: its definition as well as who creates it, and which factors determine score calculation. The following article defines CIBIL score alongside its determination method while exploring its influence and advantages, and providing effective methods to boost the score. Use an app for DSA and get help regarding loan matters in India.
Who Controls the CIBIL Score?
The CIBIL score ranges between 300 to 900 in three digits to demonstrate your creditworthiness through credit payment history records. TransUnion CIBIL delivers this credit score as the main rating method within India. Financial organizations known as banks and lenders send credit information to CIBIL. People who achieve a CIBIL score higher than 750 increase their opportunities to get loan approval.
Calculation Method for CIBIL Score
The following methods are common for the calculation of the CIBIL score-
- Payment History
Timely payment of EMIs together with credit card bills enables you to increase your credit score, but delayed or missed payments reduce it.
- Credit Utilization Ratio
A credit score will experience a reduction when users reach above 30% of their available limit. A good practice for keeping a good credit profile involves keeping your outstanding credit card balance below 30% of your ₹1 lakh credit limit.
- Length of Your Credit History
People with a longer credit history will have improved chances of getting a loan in India.
- Credit Mix
While getting a loan, try to have a perfect mix of both secured and unsecured loans. It will create a balanced portfolio and help you improve your credit rating. Talk to a DSA partner and ask all your queries to find the best solution to have a healthy CIBIL score and fulfill your needs.
How Can a CIBIL Score Impact Your Loan Approval?
- A CIBIL score above 750 demonstrates to lenders that you represent low risk as a borrower, substantially improving your opportunities for loan approval.
- A strong CIBIL score above 750 strengthens your position to obtain both reduced interest charges and larger financial loan amounts.
- Once a credit score falls below 600 lenders usually deny all loan applications or they will charge higher interest rates on available loans.
- The lack of a positive CIBIL score will force lenders to add additional requirements like co-application or collateral, which makes loans more complicated to obtain and increases their cost.
- The ability to qualify for favorable loans with improved conditions depends on maintaining good credit score health.
As you can see high CIBIL score will increase the chances of having a loan high while a low score will reduce your chances.
What Will Happen When You Have a Good CIBIL Score?
Banks and NBFCs grant easier loan approvals to borrowers with high credit scores because they view such individuals as dependable borrowers. The availability of affordable interest rates through high credit scores leads to savings throughout the loan period.
The verification requirements for pre-approved offers are minimal, and the processing time increases. Better credit card offers become available to you, and you can negotiate loan terms that provide more favorable conditions.
Issues that Might Concern Us
When your credit score is not great, it will negatively impact your loan approval.
- Incorrect loan information and fake late payment entries in your credit report will reduce your credit score unfairly.
- Your credit score becomes lower when loan rejections occur, which results in a damaged credit profile from repeated loan denials.
- The precise assessment of your credit score depends on both high utilization rates as well as payment defaults and loan settlement actions.
- Making multiple loan applications at once results in numerous hard inquiries that indicate credit hunger and lead to additional score reduction.
We hope you will keep these aspects in mind and take action accordingly so that your CIBIL score improves with time. After that, the chances of loan approval will be greater.
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