A simple guide to understanding your CIBIL score

Written by Publishing Team

The past couple of years have seen an increase in small ticket loans for various reasons. Job losses, salary cuts, medical emergencies, rent deposits, skills improvement courses, and similar reasons have prompted millennials to opt for such loans. A significant rise in short-term loans was also observed in the cities due to the downturn in economic activities which led to financial distress.

TransUnion CIBIL Ltd and Google reported that more than 60% of all personal loans originating in the fourth quarter of 2020 were less than R25,000. According to borrower files for 2020, 49% of first-time borrowers were under 30, 71% lived in non-metro areas and 24% were women. This changing trend has resulted in fintech companies targeting the younger age group as well.

As a borrower, one needs to keep in mind the factors that affect credit score. Credit reports are detailed descriptions of your credit history. Hence, it is essential to maintain a good credit score. However, what is a CIBIL score? How it is calculated and what are some of the key factors that determine an individual’s score. Let’s find out.

What is a CIBIL score?

Simply put, a good CIBIL score is the numerical compilation of a customer’s credit history, credit rating and report, which ranges from 300 to 900. A score above 750 is considered good, and a credit score below that is considered worrisome. Having a good credit score ensures hassle-free loan processing. It gives an advantage to customers, especially with regard to interest rates. Borrowers with a good score can sometimes take advantage of loans at lower interest rates compared to others. While lenders check many other criteria before disbursing, credit score plays an essential role in the approval process.

How to enter the CIBIL system?

The process of registering an individual or company on CIBIL begins with creating an account on the myCIBIL official website. After creating an account, it is necessary to upload documents such as proof of identity, address, electricity and telephone bills, etc. Once registered, it is necessary to keep track of your credit score. Timely payments for loan installments, opting for deferred payments, regular credit score checks and on-scheduled credit card payments are some of the ways to maintain a good credit score.

What factors determine your credit score?

Repayment History: As mentioned earlier, it is very important for borrowers to be on time with loan and credit card payments to maintain a good credit score. Lenders evaluate your repayment history before approving your loan application. CIBIL’s analysis reveals that 30-day delinquencies can lower a borrower’s score by 100 points, potentially damaging his score. It is essential to ensure that your payment history does not reflect inconsistencies regarding loan repayments.

Credit Mix Guarantee: There should be a balance in the borrower’s secured and unsecured loans. While loans like home loans come under secured loans, credit card purchases fall under unsecured loans. If a borrower buys only one type of loan multiple times, it can negatively affect his credit score. A healthy balance of different types of loans is considered desirable by lenders. It is suggested that you can handle different types of loans effectively.

Corrective Actions: In case the credit score of the borrower drops, he/she can take corrective actions to get it back on the right track. For example, rather than just paying the minimum due, it is important to clear all credit bills. This will not only reflect well on the credit report of the borrower but will also help them take advantage of the lower interest rates on loans.

Can you benefit from the loan without being in the CIBIL system?

It is possible to take advantage of the credit without having a registered CIBIL degree. This is achieved through loans that involve secured assets. Loans for gold, for example, do not require the borrower’s credit score as a prerequisite.

The only deciding factors in case of getting a secured gold loan, are the purity of the gold metal and the amount of the collateral offered itself. Loans against property also fall into a similar category. However, while a credit score is not necessary to avail a gold loan, a delay in repayment can severely affect a borrower’s credit score.

It should be noted that repayment installments or installments must be handled carefully in both cases. Delinquent and irregular payments will affect your gold loan and reduce your credit score.

Yashwardhan Aeren is the co-founder and chief growth officer, Ruptok Fintech Pvt. Ltd.

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