What is your CIBIL score?

How many times did you answer this question? Sometimes you may have to apply for the loan and you need to answer this or you need to provide your PAN number so they can fetch your credit score from some credit bureau.

Most of the banks or NBFC use CIBIL score to judge your credit worthiness and it is so famous that people in India in normal talks as well ask about CIBIL score not credit score.

So CIBIL is a credit bureau which stands for Credit Information Bureau (India) Limited and CIBIL score is a three-digit number that represents your creditworthiness, meaning how likely you are to repay loans and credit card bills on time.

The score is calculated by TransUnion CIBIL, one of the four major credit bureaus in India. The score ranges from 300 to 900, with a score closer to 900 being considered excellent.

• • 300 to 549: Poor credit score.
  • 550 to 649: Fair credit score.
  • 650 to 749: Good credit score.
  • 750 to 900: Excellent credit score.

Lenders, such as banks and financial institutions, check your CIBIL score before approving loans or credit cards. A healthy CIBIL score (750 and above) increases your chances of getting loans quickly and at lower interest rates.

Why is Maintaining a Healthy CIBIL Score Important?

A healthy CIBIL score opens doors to a wide range of financial opportunities:

• • Loan Approvals: Banks and lenders prefer individuals with high CIBIL scores as it shows responsible credit behavior.
  • Lower Interest Rates: If your score is good, lenders see you as less risky and may offer lower interest rates on loans.

Better Credit Card Offers: You may get access to premium credit cards with higher limits and more rewards.

Understanding Basics of CIBIL Score

How is the CIBIL Score Calculated?

Your CIBIL score is calculated based on your credit history, which is compiled into a CIBIL report. Here are the main factors that affect your score:

1. Payment History (35%): This refers to how well you’ve managed repayments of loans and credit cards. Missing payments or paying late will lower your score.
2. Credit Utilization (30%): This measures how much credit you’re using compared to your total available credit limit. Keeping this under 30% is key to maintaining a good score.
3. Length of Credit History (15%): A longer credit history is better for your score as it shows lenders how you’ve managed credit over time.
4. Credit Mix (10%): Having a good balance between secured loans (like home or auto loans) and unsecured loans (like credit cards) helps improve your score.
5. New Credit Inquiries (10%): Applying for multiple loans or credit cards in a short period can reduce your score.

Difference Between CIBIL Score and CIBIL Report

• CIBIL Score is a numerical summary of your creditworthiness, while the CIBIL Report contains detailed information about your credit history, including loans, credit cards, payment patterns, and inquiries.

Lenders often check both before making lending decisions. A good score without a good credit history may not be enough to get loan approvals.

The Foundation of a Good CIBIL Score

Why Timely Payment History is Crucial

Your payment history is the most significant factor in your CIBIL score. Missing even one payment can negatively impact your score for several months.

Consistently paying your bills on time is essential to maintaining a good credit rating.

Best Practices for Timely Payments

• • Set Reminders: Set up reminders for your credit card and loan payments. You can also use auto-debit options so that payments are automatically deducted from your account on the due date.
  • Pay at Least the Minimum: If you can’t pay the full amount on your credit card, always pay at least the minimum due to avoid penalties and a drop in your score.

How Payment History Affects Your CIBIL Score

We can understand this with an example: Suppose you have a credit card and a home loan. You’ve been paying your home loan EMI on time, but you missed a credit card payment.

Even though it was just one payment, your score could drop by as much as 50 to 100 points, depending on the severity. On the other hand, regular on-time payments, will steadily increase your score over time.

Maintain a Low Credit Utilization Ratio (This is important)

What is Credit Utilization Ratio?

Credit utilization ratio is the percentage of your total available credit that you are currently using. For example, if you have a credit card limit of ₹1 lakh and your outstanding balance is ₹30,000, your credit utilization ratio is 30%.

• It is recommended to keep your credit utilization below 30% for a healthy CIBIL score.

Tips to Maintain a Low Credit Utilization Ratio

• • Increase Your Credit Limit: Ask your bank to increase your credit limit if possible. This will lower your utilization ratio, provided you don’t spend more.
  • Spread Expenses Across Multiple Cards: If you have multiple credit cards, distribute your spending evenly across them to keep the utilization on each card low.
  • Pay Off Balances Early: Try to pay off your credit card balance before the due date, especially if you are nearing the 30% utilization mark.

How Credit Utilization Affects Your CIBIL Score

A high credit utilization ratio indicates that you are dependent on credit, which can signal a higher risk to lenders. This may cause your score to drop. 

Conversely, a low utilization ratio indicates responsible credit behavior, which helps boost your score.

Avoid Multiple Hard Credit Inquiries in a Short Time

What Are Hard Inquiries?

When you apply for a loan or credit card, the lender makes a hard inquiry to check your CIBIL score and credit history. Each hard inquiry slightly reduces your CIBIL score, and too many inquiries in a short period can significantly lower it.

How Frequent Credit Applications Affect Your Score

• • Applying for multiple credit cards or loans in a short time can give lenders the impression that you’re desperate for credit, which is considered a red flag.
  • Even though a hard inquiry only reduces your score by a small amount (5-10 points), multiple inquiries can add up and harm your score.

Best Practices for Managing Credit Inquiries

• • Space Out Applications: Avoid applying for multiple credit cards or loans within a short time frame. Wait for at least six months between applications.
  • Pre-Check Eligibility: Use tools provided by banks and financial institutions to check your eligibility for a loan or credit card before applying, to avoid unnecessary hard inquiries.

Have a Balanced Mix of Credit

Why a Mix of Secured and Unsecured Loans is Important?

A balanced credit mix refers to having both secured loans (like home or car loans) and unsecured loans (like personal loans or credit cards). Lenders like to see that you can handle different types of credit responsibly.

• • Secured Loans: These are loans that are backed by collateral, such as a home or car loan.
  • Unsecured Loans: These include credit cards and personal loans that do not require collateral.

How to Balance Your Credit Portfolio?

• • Avoid Only Unsecured Credit: Relying solely on credit cards and personal loans can negatively impact your score. If possible, take out a secured loan to balance your portfolio.
  • Manage Both Types of Credit Responsibly: Ensure you make timely payments on both secured and unsecured loans to demonstrate responsible credit behaviour.

How Credit Mix Affects Your CIBIL Score?

A person with a well-balanced credit mix is seen as financially responsible, which positively affects their CIBIL score.

For instance, someone who successfully manages a home loan along with a credit card is considered less risky than someone who only has high credit card debt.

Don’t Forget to Monitor Your CIBIL Report Regularly

Why Regular Credit Report Monitoring is Important?

It’s important to regularly check your CIBIL report to:

• • Identify Errors: Sometimes, errors such as incorrect loan accounts or payments not being updated can lower your score.
  • Detect Fraud: Monitoring your report helps you spot any fraudulent activities, like someone applying for credit in your name.

How to Get Your CIBIL Report?

• • You can get your CIBIL report for free once a year from TransUnion CIBIL. Additional reports can be purchased if needed.
  • It’s recommended to check your report at least twice a year to ensure everything is accurate.

What you need to do if You Find an Error?

• • If you find any errors in your CIBIL report, you can raise a dispute with CIBIL, providing evidence to support your claim.
  • Contact your lender directly if the error is related to a specific loan or credit card to get it corrected quickly.

Avoid Closing Old Credit Cards Unnecessarily

Why Closing Old Accounts Can Harm Your Score?

The length of your credit history is an important factor in determining your CIBIL score. Older credit card accounts contribute to the overall length of your credit history, and closing them can negatively affect your score.

Best Practices for Managing Old Credit Cards

• • Keep Older Cards Open: Even if you don’t use them often, keeping old credit card accounts open helps lengthen your credit history.
  • Use Them Occasionally: To keep the card active, make small purchases occasionally and pay them off in full to avoid interest.

Rebuild Your CIBIL Score if It’s not Healthy

What to Do if You Have a Low CIBIL Score?

If your CIBIL score is low, here are steps to rebuild it:

• • Make All Payments on Time: Ensure that you don’t miss any credit card or loan payments.
  • Reduce Your Credit Utilization: Pay down your credit card balances and keep your credit utilization ratio below 30%.
  • Avoid Applying for New Credit: Until your score improves, avoid applying for new credit cards or loans, as multiple inquiries can further damage your score.

Secured Credit Cards: A Tool for Rebuilding

If you have a low credit score, one way to rebuild it is by using a secured credit card. Secured credit cards are backed by a fixed deposit you make with the bank. These cards help demonstrate responsible credit behavior to the credit bureaus.

• As you make timely payments on your secured credit card, your credit score will gradually improve.

How Long Does it Take to Improve a CIBIL Score?

Rebuilding a credit score takes time and consistent effort. Generally, it can take around 6 months to 1 year of good credit behavior to see a significant improvement in your CIBIL score.

For example, if your score is 600 due to missed payments or high credit utilization, focusing on timely payments and reducing credit usage can bring your score up to 750 over time.

CIBIL Related Mistakes to Avoid

Missing or Delaying Payments

Even a single late payment can cause your score to drop, so it’s essential to ensure all your payments are made on or before the due date.

Using Too Much Credit

Maxing out your credit cards or using a high percentage of your credit limit indicates that you are too reliant on credit, which negatively affects your score. Always aim to keep your credit utilization below 30%.

Ignoring Your CIBIL Report

Failing to check your credit report regularly could mean you miss out on identifying errors or unauthorized transactions. Regular monitoring ensures that your credit profile is accurate and up to date.

Benefits of Maintaining a Healthy CIBIL Score

Easier Loan Approvals

A good CIBIL score increases the likelihood of lenders approving your loan applications quickly. When lenders see a high score, they view you as a low-risk borrower.

Lower Interest Rates

With a high CIBIL score, you can negotiate lower interest rates on loans such as personal loans, home loans, and car loans. Lower interest rates translate into significant savings over the loan’s tenure.

Better Credit Card Offers

With a good score, you are likely to receive pre-approved offers for premium credit cards with higher credit limits, better rewards, and perks such as travel benefits, cashback, and discounts.

Faster Loan Processing

Financial institutions are more likely to fast-track loan applications for individuals with a healthy CIBIL score because they are seen as trustworthy and responsible borrowers.

Conclusion

Maintaining a healthy CIBIL score is vital for financial stability and growth. By practicing responsible credit behavior—such as making timely payments, keeping a low credit utilization ratio, and avoiding frequent credit applications—you can build and maintain a high score.

Regularly monitoring your CIBIL report ensures that you catch errors and stay informed about your credit status. If your score is low, don’t be discouraged—through careful financial management, it’s possible to rebuild your score over time.

A good CIBIL score opens doors to better loan opportunities, lower interest rates, and more rewarding financial products. The effort you put into maintaining a healthy CIBIL score will pay off by giving you greater financial flexibility and access to credit when you need it most.