Demystifying all the fears you have about CIBIL score

Jul 2018 | Team Rubique

A CIBIL score is a 3-digit number one will have to consider before applying for any loan, be it a home loan or a personal loan. CIBIL stands for Credit Information Bureau India Limited, which signifies the creditworthiness of a person who is applying for the loan.

CIBIL gathers and manages the credit information of users so as to calculate their credit score. This credit information about the users is received from financial companies and banks and thus, a credit report is generated. This credit report is directly linked to your CIBIL score. Usually, a CIBIL score above 750 is recommended.

Ranges of CIBIL scores

  1. 0 or -1: This means that there is no credit history at all, both through credit cards and loans. You should consider availing one to just pump the initial credit score, and consequently to have a credit history in the first place.
  2. 350 – 550: This comes under the danger zone as most banks and financial companies consider it a bad score. The probability to get a fresh loan or a credit card is very less.
  3. 550 – 650: A CIBIL score between 550 and 650 is accepted by most financial institutions. A score like this makes banks develop some trust in you. The chances that the loan gets approved without any hiccups is high here.
  4. 650 – 750: Individuals with CIBIL score ranging from 650-750 are in a very safe zone while applying for credit cards and loans. However, it is recommended that this score is always maintained.
  5. 750 – 900: This is considered the best range in the CIBIL score. Experts in finance and those who are conscious of their finances usually have this level of score. Needless to say, regular payments and clearance of dues would only lead to this score. Banks would be more than happy to offer loans and credit cards to someone with this score.

What you need to do to ensure a good CIBIL score:

  1. Any lender would only trust you to repay the loan in the stipulated time and hence, the installments of your credit card must be paid on time.
  2. Monthly installments of your previous loans must be paid on time because your credit report will display the history of loan payments and how punctual you were with paying the bills and dues.
  3. A longer length of your credit history also matters as it aptly explains how you have been handling your loan amount. This doesn’t necessarily mean that shorter credit length would not help, as long as there aren’t any late payments of dues.
  4. Banks also look at the number of credit accounts you availed. If there are too many of them in a short period, it says that you are financially unstable.
  5. Ensuring that you pay the entire due but not just the minimum debt.

What you should not do to ensure a good CIBIL score:

  1. Making sure that the credit cards are not maxed out, meaning that you should not be using more than 75 percent of the credit limit.
  2. If you only pay the minimum due for a particular installment, the overdue still reflects as your outstanding balance. Hence, it is important you pay all your outstanding dues without a delay.
  3. Avoid being a co-applicant while applying for a joint loan, as it carries consequences if the other applicant fails to adhere to the guidelines.
  4. Halt any inactive credit cards that have been lying around for some time, as charges are levied on these accounts too.

The alternative approach if there is not enough CIBIL score:

Unless or until your credit score is at the worst possible stage, there are always other ways to fix this problem. If you are running out of time to enhance the CIBIL score at any given point, there are other ways to be able to apply for a loan.

  1. Married couples can apply for a loan using the details of their spouses. If the spouse has a steady income and a good CIBIL score, you can apply for a joint loan with combined incomes. But a late payment here will not just worsen your score, but also influence your spouse’s CIBIL score.
  2. NBFCs (Non-Banking Financial Companies) are the ones that are not authorized or possess a license to facilitate services. These institutions do offer loans in spite of having a low CIBIL score, but the interest percentages tend to be higher.
  3. Another avenue of debt financing is peer-to-peer (P2P) lending that does not have any media or middlemen. When you apply for P2P loans, the loan amount may be offered at a high rate of interest. This avenue, however, takes a lot of time and risk.

A bad CIBIL score is certainly a thing to worry about, but you will need to be patient and diligent in the attempts to increase it, as it cannot happen overnight.

It is a healthy practice to keep a constant check on your CIBIL score from time to time. It is imperative to ensure that the previous loans are closed correctly and the inactive credit accounts are terminated. At times, a few banks might not be able to update the registries, which could directly influence your CIBIL score.

But, to be on the safer side, you should keep in mind that outstanding balances and recurring dues have to be avoided at all costs. Any late payment or a pending due might not be of effect immediately but long-term effects are bound to occur, as the bad practice persists.