Rajesh had applied for a loan for his child’s higher education. He was pretty sure it would be accepted, and the money would be disbursed to him. However, to his utter dismay, the bank rejected his application. When he inquired about what could have gone wrong, he came to know that his CIBIL score was low.
What is this CIBIL score? CIBIL score is a three-digit numeric summary that offers a true reflection of your credit profile. It is used by banks as a criterion to assess your creditworthiness. Based on this, the bank determines whether you are eligible for a loan or not.
So how do you improve this number? To figure that out, you must first understand how it is calculated.
How is CIBIL Score Calculated?
The CIBIL Score, which determines your creditworthiness and your access to borrowed funds in the future is based on your credit history. The same is regularly shared by the banks with CIBIL. Four key factors capture your credit history and in turn determine your CIBIL Score. These include-
- Repayment history- Repayment of a loan, be it credit card bills or loan EMI, is considered for calculating your CIBIL score. Being punctual with all such payments reflects positively on your score.
- Credit mix of secured or unsecured loans- It is important that while availing credit, you consider taking a mix of secured and unsecured loans. This is because if you depend too much on unsecured loans such as credit cards or personal loans, your CIBIL score can get negatively affected.
- Credit card and loan enquiries- Too many hard inquiries in the form of applications for new credit cards or loans can affect your CIBIL score too.
- Credit utilisation- Your credit utilization is measured as a ratio of the total funds used on your credit card to the available credit limit on the card. The higher the ratio, the more is the repayment pressure, worse is the CIBIL score.
Sometimes, the trend of your outstanding balances in the long term, the ratio of payment made and payment due, as well as the credit card transaction history are considered for calculating the CIBIL score.
Once the calculation is completed, a three-digit number is generated, ranging from 300 to 900, which is known as the CIBIL score.
How to Check CIBIL Score?
Once you have figured out all the parameters that are considered for the calculation of the CIBIL score, you need to ensure that you keep a check on the same. Several financial service providers offer you the opportunity to check your CIBIL score online for free. One such app that you can use to check your credit score is the Finserv MARKETS app. It is readily available on both Google Play Store and App Store.
- Once downloaded, register and sign in to your account
- Click on the ‘Check CIBIL score’ option
- Enter the details requested for
- Verify the information entered by validating with the OTP sent to you
On entering the correct OTP, your request will be processed, and you will be able to view your CIBIL score along with a detailed report of your overall financial health on the FInserv MARKETS app itself.
How to Build a Good CIBIL Score?
Most lenders require you to have a minimum CIBIL score between 700 and 750 to get approval for a personal loan. New credit card applications, on the other hand, require a CIBIL score above 750. In such a situation, when a higher CIBIL score is critical for getting credit approval, it is important that you work towards building a good score. To do so you need to practice and develop some critical financial habits.
- Never miss paying your bills on time as missed payments bring down your CIBIL score
- When taking loans take a mix of secured loans, such as auto loan, home loan, etc., and unsecured loans, such as credit cards, personal loan, etc., as too many unsecured loans can reflect negatively on your credit history
- Works towards maintaining a low credit utilization ratio as it can help improve your creditworthiness as well as your CIBIL score
- Be aware and informed when holding a joint account or standing as a guarantee to another person as their negligent credit behavior can impact your credit history and CIBIL score
- Keep a check on your CIBIL score so that you are aware of actions that can hamper the score
Be it for availing a loan for addressing financial emergencies or funding planned future expenses, or simply for getting a new credit card, maintaining a good CIBIL score is essential. Only with a high score can you amplify your creditworthiness and improve your chances of securing additional credit anytime and in a hassle-free manner.
