An individual’s credit score, provided by credit unions like TransUnion CIBIL Limited, is significant and essential for many banking processes. Most people in India generally know what a CIBIL score is, but many don’t know much about it. The primary goals of CIBIL are to analyse consumer borrowing and payment data to evaluate loan risk and set credit rates.
Understanding what a CIBIL score is and how it is calculated is essential. CIBIL scores are calculated based on various factors, including a person’s payment history, loan accounts, balance due, duration of credit history, etc. After being calculated, the scores are shared with banks and financial institutions for evaluation.
The credit score in India goes from 300 to 900. The lender will have more faith in your ability to repay the loan if your score is closer to the 900-point threshold. A credit score closer to 900 increases your chances of your loan or credit card application getting approved by lenders. A credit score of 750 or more is usually seen as good.
Your credit score has the following effects on your financial journey:
Approvals of your future loans
Your credit score will determine how creditworthy you are to potential financial institutions. When you apply for a new loan, the lending institution checks your credit report as soon as you do. A credit score higher than the lending company’s threshold limit will increase your chances of loan approval on favourable terms. An individual with a 750+ credit score is considered a low-risk borrower. Meanwhile, the lending company may reject your loan application if your credit score is below 600.
Processing loans more quickly
If you have a good to exceptional credit score, lenders will view your profile as low-risk, speeding up your loan approval process. On the other hand, if your credit score is below average, lenders will need to consider additional variables while analysing the risk in your profile, delaying the loan process. An individual with a high credit score has a better chance of being pre-approved and receiving an instant loan offer.
Improved Loan Terms
A good credit score helps you qualify for new loans. It also affects the cost of your loans. Lenders are more inclined to provide loans if you have a higher credit score. This, therefore, gives you the authority to negotiate loan terms with the lenders, including the interest rate, processing fee, additional fees and charges, an extension of the loan’s tenure, etc. An average or below-average credit score could lead to loan offers with extremely high-interest rates. So it’s wiser to check your CIBIL score online before applying for a loan.
Having access to premium credit cards
You can obtain premium credit cards with the highest reward points and cashback deals if you have a decent credit score. Typically, the credit limit on these cards is higher. Additionally, these cards have partnerships with several brands that enable you to purchase a desired good or service at a reduced cost. The credit cards you get with an average credit score have limited benefits.
Eligibility for Employment
Many businesses look up the credit history of the applicants they are about to hire in their company. This screening is only carried out for jobs requiring employees to deal with cash. Therefore, the company may view your profile as high-risk if your credit history indicates missed and delayed payments.
You can only get a top-up loan if you have paid all your previous dues on time. Financial institutions typically avoid refinancing or offering top-up loans when your credit score is low. So, checking and improving your credit score before applying for a loan or credit card is essential.
To check your CIBIL score online, you can download mobile apps like OneScore that enable you to get your credit score and credit report every month for free.
A significantly lower credit score indicates that your expenses exceed your earnings. It also suggests that you need to develop financial discipline and pay more attention to your spending habits.
Many borrow additional money to pay their monthly instalments, resulting in more debt. Borrowing money frequently can trap you in a debt cycle. Getting trapped in a debt cycle will restrict you from saving money.
A strong credit score indicates that you pay your bills on time, avoiding late fees. This helps you get credit on favourable terms, including lower interest rates, helping you save money on repayments.
Peace of Mind
You should be sure you are practising financial discipline and effectively managing your finances. You must make your monthly payments and credit card bills on time. You feel more at ease about your finances when you pay your bills on time. Being unable to pay your repayment fees and dues on time can harm your peace of mind and put you under financial stress.
With a good credit score, you can enjoy a secure financial future. Increase or maintain your credit score by repaying your EMIs on time.