CIBIL or Credit score is extremely crucial in availing of a personal loan. In case, if you are not focused on maintaining a positive score then you will certainly face rejection on your loan application. There are many reasons as to why your credit score could be low. Failed or delayed EMI repayments, applying for credit too many times within a short duration, and errors in credit reports are just some reasons which can hurt your credit score.
A responsible borrower is someone who embraces his/her financial mistakes of the past and then acts on it to correct them. For example – to avail a personal loan from Loan Singh requires you to have the required income and a positive credit score.
Through this piece we can learn more about Credit Bureaus and also tips on how to improve your CIBIL or credit score.
CIBIL or Credit Score Check
In India, there are 4 credit information bureaus licensed by Reserve Bank of India: CIBIL, Experian, Equifax and Highmark. Last month it was reported that California based analytics software firm FICO announced the launch of its FICO Score and FICO Score X in India (which will be based on the borrower’s nontraditional information such as social media, smartphone records and digital footprints. CIBIL though, is the most accessed credit bureau.
As the name suggests, a credit bureau is a bureau that houses your credit information. It maintains the information sourced from credit institutions such as banks, credit card companies, debt collection agencies, the government and other lending institutions. Credit bureaus look at your credit repayment patterns to determine how much of a risk you pose to the credit lending institution. Whenever you approach a credit institution for fresh credit, a hard inquiry is raised by the institution to the credit bureau. The inquiry is basically a request to fetch your credit repayment history. The bureau then sends the history back to the institution in the form of a credit bureau report; with a compiled numerical score called credit score. The score also reflects the number of times a hard inquiry (your credit report requests to the bureau) was done. The credit bureau report contains your personal information such as your name, date of birth, residential address, PAN, voter ID number, contact number, types of credit availed, size of loan or credit limit spend, outstanding balance, late payment remarks (if any) and your credit score.
A credit score is a reflection of your monthly payments of loan EMI and credit card bills. It also considers the above mentioned hard inquiries. A poor score means you are a potential risk. Because it gives an overall picture of your past credit responsibilities, it is a trusted system followed by credit institutions.
Ranges of Credit Score
The credit score has a minimum value of 300 and a maximum value of 900. The higher your credit bureau score, the better are your chances of getting credit from credit institutions like banks, digital lending platforms and credit card issuing companies. The credit score ranges are mentioned below
Score less than 0 – A credit score of 0, or less, means that you have no credit history. It is wise to apply for a personal loan from a digital lending platform because banks are likely to reject your loan application.
Score between 350-500 – A score between 350 and 500 is poor, indicating either a default in past EMI payments or excess credit utilization on credit cards.
Score between 550 – 650 – A score in this range is acceptable; it indicates that you have been regular with your payments and can be trusted for fresh credit. The chances of getting a loan approved are good.
Score between 650-750 – This range indicates that you are doing well with your finances. You should stick to your financial habits to maintain or improve your score. The chances of getting a loan approved are great.
Score between 750-900 – This is considered the best range for a borrower. This clearly indicates that you have been regular with your EMI or credit card bill payments. You can avail a loan with ease.
5 Tips to Boost Your CIBIL or Credit Score
You may, at some stage in your life, think about applying for a personal loan at a bank or digital lending platform. A personal loan can be for festival shopping, purchase of household appliances, second-hand car, electronic gadgets, purchase of gold, travel, home improvement, relocation of job, medical expenses, debt consolidation, home renovation, marriage, etc.
A good credit bureau score can get you a personal loan easily because the lender can look at your repayment history and gauge your prospective repayment behavior for the loan they are going to approve. 5 simple tips from Loan Singh are put below
- Timely payments
Ensure that all your loan repayments happen on time; every month. Try to keep some extra cash handy so that you do not fall short while paying EMIs. You can set up standing instructions in banks or use auto debit for digital lending platforms so that the amount is directly debited from your account towards EMI.
- Credit card limit
Ensure to keep Credit Card spending at a minimum. Make sure you pay your card balance in full each month. Spending frequently via a credit card could increase your credit utilization and slowly pile up into credit card debt.
- Closing of multiple credit cards
In case, if you are operating more than one credit card and feel the need to close each of them, then make sure you don’t close all the cards at once. The sudden closure of credit cards will lead to an absence of credit history which is the main criteria that lenders look at while evaluating your creditworthiness.
- Multiple inquiries
A hard inquiry is made by the lender to the credit bureau when you apply for a new loan or a new credit card. Too many inquiries in a short span of time would indicate desperation for credit and hence adversely affect your credit bureau score.
- Check for errors
Apply for a credit bureau report just before you want to apply for a loan. This aids in checking for any errors that appear on the report either from the lenders or the bureau. If you do not dispute an error in your report, lenders could be looking at incorrect information while evaluating your creditworthiness.
How did you like these tips? Let us know your feedback in the comments below.