What Is CIBIL Score And Its Importance?

Whether you’re applying for a credit card or a loan, your CIBIL score becomes a decisive factor. So let us know more about CIBIL scores and their importance.

What is CIBIL score?

CIBIL score or credit score is a number that represents a borrower’s creditworthiness. By creditworthiness, it refers to a borrower’s ability to pay back the borrowed money. Credit bureaus determine credit scores after considering a number of factors. Some of these factors include repayment history, credit utilization ratio, credit history etc.
In India, the Credit Information Bureau (India) Limited (CIBIL) is the credit bureau that is the most popular. Hence, credit score is synonymous to 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 CIBIL score is, here is how CIBIL score plays an important part.

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 to judge 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 approval for loans.

2. Access to higher loan amounts:

Not just loan approvals, the loan amount is also determined by one’s CIBIL score. If you have a good CIBIL score, then the lender feels confident that 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, there is a huge amount of risk involved. Therefore, credit card issuers have a number of 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 own 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, if you don’t have a credit profile or have a low CIBIL score, it might affect you. 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 etc., as well as credit card dues.

2. Don’t be a defaulter:

Failing to pay back a loan or your 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 who have 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 goes down. Your credit utilization ratio is the percentage of the total available credit that you actually end up using. 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 go up.