Last Updated on December 28, 2022 by Hammad Hassan
CIBIL is a three-digit number that represents the summary of your credit history. The score depends on several factors, including your borrowing and repayment history shared by financial institutions and lenders. You can check your Cibil Score Online and it ranges from 300 to 900. The closer your score is to 900, the higher your creditworthiness, and the higher your securing a loan. Apart from helping you get approved for loans faster, there are several other advantages of having a high CIBIL. Please read on to learn more about why the CIBIL score is important.
How is the CIBIL score calculated?
Your CIBIL score is affected by four key factors, including:
Credit mix: Maintaining a healthy balance between secured and unsecured loans helps increase your CIBIL score, as too many unsecured loans have a detrimental effect on them.
Payment history: Delaying your EMIs or making late payments affects your CIBIL score negatively.
Too many credit inquiries: Multiple or too many loan inquiries affects your CIBIL score adversely as it indicates that your loan burden may increase significantly in the future.
High credit utilisation: An increased credit utilisation limit indicates that you are exhausting your credits too quickly, meaning that you might have a rising debt burden over time and indicating poor finance management skills. This may have a negative impact on your Cibil Score Online.
Why is CIBIL score important?
- It indicates your creditworthiness:
This three-digit number helps lenders predict your capability of repaying the loan on time. If your past repayment patterns have been faulty or delayed, your CIBIL score will be lower, and your chances of securing a loan will decrease.
- Higher loan amounts:
If your CIBIL score is high, lenders will have greater trust in you. So, you will be eligible for higher amounts of loans. Those with a lower CIBIL score find it hard to secure higher loan amounts as lenders don’t trust them easily. Even if they manage to secure a higher loan amount, the interest rates are high as well.
- Longer repayment loan tenures:
Having a longer time to repay the loan is a great relief for borrowers as it helps them to plan their finances and EMIs efficiently. Lenders only provide long repayment tenures to borrowers with a good Cibil Score Online as they have adequate satisfaction with the repayment behaviour of such borrowers.
- Lower interest rates:
When applying for a loan, one of the most important parameters borrowers consider is the interest rate. Different interest rates are provided by different financial institutions, and the CIBIL scores play an important role in this. Borrowers with higher CIBIL scores get lower interest rate loans, and there is less paperwork involved. On the other hand, borrowers with a lower Cibil Score Online have to pay very high-interest rates on their loans. In some cases, the application might even get rejected.
- Faster approval of applications:
The time taken for approval of your loan application depends on your CIBIL score. The applications of borrowers with a good CIBIL score get approved faster, and the loans get disbursed faster. For borrowers with poor scores, more paperwork is involved due to increased scrutiny from lenders.
CIBIL score is a reliable parameter used by lenders and financial institutions to gauge a person’s or company’s capacity and commitment to repay the loan amount. Those who maintain a decent CIBIL score enjoy many benefits and a bright financial future. Now that you have learned about the factors it depends on, you will have an idea about How to improve CIBIL score for good!
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