From corporations to individuals, almost everyone these days is dependent on credit. However, this increased demand for credit has led to lenders becoming extremely cautious about who to lend money to. To eliminate loan applications from people who are incapable of repaying loan on time and will inevitably cause the lending institution to suffer monetary losses, lenders employ the concept of credit score.
There are four credit rating agencies in India that lenders work with: Equifax, Experian, CRIF Highmark and TransUnion CIBIL. Most lenders in India work with TransUnion CIBIL and the credit score that TransUnion CIBIL assigns to borrowers is known as the CIBIL score. Though credit score and CIBIL score are different terms, they are often used interchangeably in India. The credit score is a three-digit number between 300 and 900 that tells a lender the risk involved for them in lending money to the borrower or credit user. A borrower’s credit score tells a lot about them. It tells a lender whether the borrower pays their credit card bills and EMIs on time, how dependent they are on credit and how do they manage different types of debt. A good credit score, i.e. anything above 750 indicates high creditworthiness and repayment capacity. A low credit score, on the other hand, is indicative of an irresponsible attitude towards credit.
So, how does a good credit score help a borrower? Here’s How.
The Importance of a Good Credit Score
A Good Credit Score Helps You Get Approved for a Loan Quickly
A good credit score or a good CIBIL score is the mark of a borrower who has never defaulted on loan repayment and has their debt situation under full control. Anything between 750 and 900 is a CIBIL score within the CIBIL score good range. Borrowers whose credit score lies within the good credit score range are low-risk or zero-risk borrowers by the lenders. Lenders, therefore, approve loan applications from such individuals quickly. In other words, credit users who have a good credit score get access to credit almost immediately.
Borrowers with a Good CIBIL Score Have High Negotiating Power
A good CIBIL score also indicates high repayment capacity and creditworthiness. Lenders know that with these borrowers, they do not have to worry about loan repayment. Such clients only prove to be profitable for the lenders and therefore, all lenders want such borrowers as clients. Borrowers with a good credit score therefore have high negotiating power with lenders. Such borrowers are able to negotiate for better loan interest rates, longer repayment tenor and in general, lucrative loan terms and conditions.
A Good Credit Score Will Also Help You Land You Your Dream Job
These days, many employers check a borrower’s credit score before extending them a final job offer. They do so to understand how reliable and trustworthy a person is and how much can they be trusted in general. Similarly, a good CIBIL score also makes it possible for a borrower to find a good apartment as these days, almost all homeowners check a borrower’s credit score to understand whether they can be trusted with timely payment of monthly rent.
Lastly, a Good CIBIL Score Also Helps Borrowers Get Insurance on Low Premiums
When a borrower approaches an insurance company, the company takes into account several factors to decide the insurance premium that the borrower must pay and one of the most important of all these factors is their credit score. Borrowers with a good CIBIL score pose low risk to insurance companies and therefore, such borrowers are able to avail of insurance on low premiums. On the other hand, borrowers with a low CIBIL score often find themselves paying a higher premium on their insurance.
Here’s What You Can Do to Achieve a Good CIBIL Score
If your CIBIL score or credit score is below 750, do not worry. Here are a few things that will help you achieve a good CIBIL score within no time.
– Your CIBIL score depends on several things but the factor that most impacts your CIBIL score is your repayment history. A borrower’s repayment history makes up almost 40% of a borrower’s CIBIL score. Therefore, if you wish to improve your CIBIL score, the first thing you must do is make a habit of paying all your credit card bills and loan EMIs on time. Never miss a due date and your CIBIL score will automatically begin to improve within only a few months.
It makes up almost 30% of a borrower’s credit score. So, if you want to improve your credit score, maintain a low credit utilization ratio. Never exhaust the limit on your credit cards and try and clear the entire amount due each month. This will make your credit score go up over time.
– If your CIBIL score is low and you wish to improve it, refrain from making any new credit card and loan applications. Too many applications show a borrower to be credit hungry and excessively dependent on credit. They also have a negative impact on one’s credit score. Therefore, borrowers should apply for a loan only when they need it. Further, they should make sure there is ample gap between two credit card or loan applications.
– Yet another simple way to maintain a good CIBIL score is to have a mix of both secured as well as unsecured loans. This convinces a lender of a borrower’s ability to handle different types of debt and increases their chances of getting approved for one.
– Lastly, if you want to improve your CIBIL score, check your CIBIL report from time to time. Sometimes, a borrower’s CIBIL score goes down due to mistakes or wrong information passed on to the credit rating agencies by credit companies. Such mistakes can have a great impact on a borrower’s CIBIL score and therefore, if one sees a mistake like this, they must report it immediately.
It does not matter what loan you are planning to apply for, check your CIBIL score well in advance and go ahead with the loan application only if your CIBIL score is at least 750.