How the Score from CIBIL Determines Eligibility for Your Loan

The race in the present era has made one strive hard to achieve everything in one’s life. Be it personal or professional goals, no one wants to take one step back. Purchasing a house, upgrading equipment, financing further education, loans from the bank, and other financial institutions are almost taken for granted.

Loans, however, do not come as easily as filling up an application form and then waiting for good news. The most important determinant of how easily lending money to you is acceptable to lenders would be your CIBIL score, a three-digit number that may change your financial life.

What is a CIBIL Score?

CIBIL score is represented in numbers and denotes the credibility of a person. Lenders, according to a person’s credit history, which considers factors such as debt balances, credit use, and repayment history, extend loans to people.

If one’s score is 900, which is the highest score, their credit conduct would best be described, and if someone has below 300 as a score, his credit conduct could be described as worse.

Scores usually range between 300 and 900, and most of the time it serves as one of the crucial parameters for a person or organization to consider whether the individual or business will be able to repay the loan on time is his/her CIBIL score.

How is the CIBIL Score Calculated?

There are the following factors based upon which the CIBIL score is calculated:

1. History of Repayment: You can regard your repayment history as the most important factor in deciding your CIBIL score. In case you have always paid your loans, credit card bills, and EMIs punctually, then there is a jump in your credit score.
2. Credit Utilization: Your score is also influenced by how much of your available credit is being used. Dependence on too many borrowed funds can be reflected in a high utilization ratio and hence there is another negative determinant that impacts your credit score.
3. Credit Mix: A high credit mix is achieved through the presence of a healthy mix of unsecured loans such as credit cards and secured loans such as home loans. That also indicates that the consumer has managed other forms of credit successfully and therefore will be able to repay it.
4. Credit Inquiries Any lender would do a “hard inquiry” on your credit history every time you want to apply for a credit card or loan. Your score will come under severe suffering if you are submitting too many queries in a hurry in the period.
5. The Longer Credit History: The more years you carry credit, the more likely you are to have a payment history in good standing. This will help boost your score and make you appear more as a responsible payer to the lenders.

How Is Your CIBIL Score Influencing Loan Eligibility?

Armed with the knowledge of what a CIBIL score is and how it is computed, let’s talk about the impact of your CIBIL score on loan eligibility.

1. Loan Approvals- The moment you make an application for a loan, the lender checks your CIBIL score. Ideal in most Indian banks is a score of 750 and above, and any lender will see this as the key to allowance for a loan. Unless your score is above this, you are most likely going to be rejected or get additional criteria that will call for the submission of a guarantor or even collateral. What the lender reads into a low CIBIL score is that you are most probably a risk-potential borrower, and they will not readily give their nod on your loan application.

2. Interest Rates- A good CIBIL score can hold much significance in determining the interest rate you can receive. A better score automatically puts you at the negotiating table with lower interest rates. This is because lenders regard you as being at low risk and, by and large, offer more competitive interest rates. A bad score will get you paying higher interest rates, therefore, costing you a lot more for the loan in the long term.

3. Loan Amount and Tenure- Your lenders use your CIBIL score to know how much and for how long a period they can safely lend you. Good scores may qualify you for higher loan amounts with flexible repayment terms, whereas bad scores can act as the restricting factor regarding the amount of loan and diminish the tenure options.

4. Pre-approved loan offers- A good CIBIL score does give pre-approved loan offers from financial institutions. Such pre-approved offers help put more credit back into your pockets in less time and less paperwork, especially when you need it the most. They effectively depict the strength that lies in your credit profile and bring out the fact that banks are sound enough to return the amount of the loan.

Why Do You Need to Maintain a Good CIBIL Score?

The very significant influence your CIBIL score is sure to have on the extent of how much you qualify for in a loan makes it imperative to ensure that you get a good score and maintain it.

Here are some reasons why you should work on maintaining a high score:

– Availability of better financial products: this reaches far beyond just making you earn a chance of loaning opportunities as a good score will see you accessing other favorable financial products like higher credit limits and low insurance rates

– Less time spent in the sanctioning of a loan: the chances of lenders advancing loans to you are increased with a good score because that simply translates to being a reliable person.

– Low Cost: High CIBIL scores also include reduced interest rates, hence you will pay less over a loan term.

Improving Your CIBIL Score

If you believe your CIBIL score is not at the desired level, then here are some ways to improve it:

– Pay On Time: Pay all your EMI and loan repayments. Ensure your credit card bills are paid on time.

– Do not frequently use your credit cards: The credit utilization ratio should be below 30% of the total available credit.

– Do not apply for loans: Multiple inquiries in a short period can also lower your score. Be very careful while making applications for credit.

– Good credit mix: Have a good mix of secured and non-secured loans, so it shows you can repay any kind of credit.

Thus, it would be easier to maintain and have a high score of CIBIL in the process of a loan. It shall further make the experience of buying a new car, taking out a home loan, or even setting up a business easier, faster, and less expensive.

So, keep checking your score and work to ensure it is as high as possible when applying for credit, so you are better compared to other people.