What Is CIBIL Score And Its Importance?

Your CIBIL score becomes a decisive factor when applying for a credit card or a loan. So, let us know more about CIBIL scores and their importance.

What is the CIBIL score?

CIBIL score or credit score is a number that represents a borrower’s creditworthiness. Creditworthiness refers to a borrower’s ability to pay back the borrowed money. Credit bureaus determine credit scores after considering several factors, including repayment history, credit utilization ratio, and credit history.
The Credit Information Bureau (India) Limited (CIBIL) is the most popular in India. Hence, a credit score is synonymous with the CIBIL score here. CIBIL score is a three-digit number that ranges from 300 to 900. Needless to mention, the higher the CIBIL score, the better it is.

Importance of CIBIL Score

Now that you know what the CIBIL score is, here is how it plays an important role.

1. Role in loan approvals:

CIBIL scores play an important role in loan approvals. Before approving a loan to a borrower, lenders look at the borrower’s CIBIL score. This CIBIL score is a good measure for judging a potential borrower. If they have a good CIBIL score, it indicates that they have handled their previous debts responsibly. On the other hand, a low CIBIL score is an implication that the borrower has handled their previous debt badly. Therefore, having a high CIBIL score can help you get loan approval.

2. Access to higher loan amounts:

It is not just loan approvals; one’s CIBIL score determines the loan amount. If you have a good CIBIL score, the lender feels confident you can repay their loan. Thus, you will be eligible for higher loan amounts.

3. Credit card eligibility:

With every credit card application that banks and financial institutions approve, a huge amount of risk is involved. Therefore, credit card issuers have some eligibility criteria for the applicants. The applicant’s CIBIL score is one of the main ones. With a good CIBIL score, you will be eligible for some of the best credit cards in the country.

4. Higher credit limits and lower rates of interest:

You might be eligible for higher credit limits if you improve your credit limit while having an existing credit card. With higher credit limits, the interest rate of your credit card can also go down.

5. Buy products on EMI:

Sometimes, buying a phone or a laptop on EMI has its perks. However, eligibility for EMI purchases often depends on your CIBIL score. Once again, having a high CIBIL score helps.

Improve your CIBIL score

By now, it must be evident how important CIBIL scores become in different aspects. Hence, it might affect you if you don’t have a credit profile or a low CIBIL score. But there are some ways you can boost your CIBIL score.

1. Pay your dues on time:

One of the best ways to build up a good CIBIL score is to pay all your dues on time. This includes EMIs of personal loans, home loans, and credit card dues.

2. Don’t be a defaulter:

Failing to repay a loan or credit card dues can make you a defaulter. This would significantly bring your CIBIL score down. Hence, make sure to pay off all your existing debts and credit card dues.

3. Low credit utilization ratio:

Your CIBIL score also gets hampered if you use your credit irresponsibly. People with a high credit utilization ratio are usually thought to be heavily dependent on credit. Hence, they are considered less eligible for more credit, and their CIBIL score decreases. Your credit utilization ratio is the percentage of the total available credit you use. Keeping this ratio to 30% and using your credit wisely can help you improve your CIBIL score.

4. Don’t have too many debts:

Too many debts can also lower your CIBIL score. If you keep closing off your existing debts, your CIBIL score will automatically increase.