If you have ever made an application to take a home loan or any other loan or credit, you must have come across the term CIBIL score. What is the CIBIL score? What is a Good CIBIL Score? Is this score absolute and can one improve it over time? This article answers these important but often ignored questions.
What is the CIBIL Score?
The CIBIL score is a key factor that banks and financial institutions take into consideration while deciding a loan applicant’s loan eligibility and terms and conditions at which they must be offered credit. The CIBIL score is reflective of one’s creditworthiness. It provides a window into the loan applicant’s borrowing and repayment history and overall financial behaviour.
TransUnion CIBIL Limited assigns CIBIL scores based on the records it maintains. The records maintained by the bureau include important details about credit users, such as the credit card transactions made by them, loans they have applied for and loans they are currently repaying, repayment history, and instances of missed EMIs or loan default.
The CIBIL score can range from 300 to 900. The closer one is to 900, the easier it becomes for them to secure credit and that too on the best possible loan terms and conditions. A high CIBIL score indicates responsible financial behavior and reduced risk for lenders. Before you apply for credit, you must calculate your CIBIL score and proceed with the loan/credit request only if you have a CIBIL score of at least 750. Such a CIBIL rating will allow you to negotiate for a high loan sanction or the desired loan amount, low interest rates, and a repayment tenor that aligns well with your income and repayment capacity.
So, what is a good CIBIL score? In the next section of this article, we look at different CIBIL score ranges and what they mean for loan approval.
CIBIL Score Ranges and What They Mean for Loan and Credit Approval
350 to 549 (Low): A CIBIL score between 350 and 550 is considered low and is reflective of delayed EMIs and missed loan payments. People with CIBIL scores in this range are labelled ‘high-risk’ borrowers and find it challenging to get approved for any kind of credit or loan. Improving credit score in this case is not impossible, but requires time. Credit users with a score in this range must practise financial discipline to move to a higher CIBIL score range.
550 to 699 (Average): A CIBIL score in this range will establish you as irresponsible towards debt repayment and cannot be trusted with timely repayment of debt or EMIs. With a CIBIL score in this range, access to credit or loans becomes possible only when one adds a co-borrower whose creditworthiness and CIBIL score are excellent. Such borrowers are also often asked to buy insurance to offset the risk for the lender.
700 to 749 (Good): A good CIBIL score is a score in the range of 700 to 749. Such a score essentially indicates that the applicant is a responsible credit user and can manage credit well. However, such a credit score does not warrant excellent negotiating power. In other words, with such a CIBIL score, the applicant may have to agree to whatever terms and conditions their lender decides for them. They can also try to improve their credit score and then try and secure the loan on terms and conditions that work best for them.
750 to 900 (Excellent): If your credit score ranges from 750 to 900, you have an excellent score. Such a score is reflective of an impeccably clean repayment history with no cases of missed EMI payments. Such a score also implies that the loan applicant or the credit borrower is a responsible credit user with their debt situation entirely under control. Such individuals are flagged as low-risk borrowers and can secure credit, including home loans, easily and on the most profitable loan terms and conditions.
NA/NH: If you see NA/NH written on your credit report, do not panic. NA/NH rating is assigned by TransUnion CIBIL to those individuals who either have never taken a loan or have only recently availed credit; therefore, credit information agencies do not have sufficient information to assess their creditworthiness. Individuals with NA/NH can consider availing themselves of a small loan or a credit card and repaying their monthly dues on time to build a solid credit rating. To get started, you can check CIBIL online to monitor your progress and ensure you’re on the right track.
Final Words
If you are planning to take a home loan, make sure your CIBIL score is at least 750. If you have a CIBIL score of less than 750, you can improve it by paying bills on time, applying for multiple loans only when necessary, and monitoring your credit report regularly.
