CIBIL or the Credit Information Bureau of India is the central repository of all your credit information. The credit history is tracked using your PAN card to which all your past credit records are mapped. So, if even if you have defaulted more than 10 years back, it does show up in your credit history and impacts your credit score. Why is CIBIL score so important and what does it mean for your credit worthiness. What is the importance of CIBIL score? How does your credit score affect you and how it impacts your loan getting ability in the market? These are some of the questions we shall answer here.
How is the CIBIL score calculated?
CIBIL scores are calculated based on various factors such as payment history, number and type of loan accounts, length of one’s credit history, outstanding debt, debt to income ratio, expense to income ratio, nature of job, riskiness of the sector and other factors. Once the CIBIL score is calculated, it is sent to banks and financial institutions for evaluation. Each bank or credit institution has its own benchmark that constitutes as a good score. It differs across banks. The normal benchmark is that if you have a CIBIL score of 750 and above it is a good score and you are more likely to get a loan. The CIBIL score can range between 300 and 900 and the higher it is the better it is considered to be. Banks share your credit track record with CIBIL and the CIBIL gets continuously updated because of that.
Interestingly, some factors do not impact your credit score
While credit score is based on a plethora of factors, there is confusion on what it includes. Let us start by looking at the factors that do not count in your CIBIL score. The following factors don’t make a difference to your CIBIL score:
Balance in your savings accounts and your FDs
Your education levels; graduate or post graduate
Income levels do not matter in isolation except in debt as a percentage of income
It does not matter whether you are a male or female and CIBIL score is gender agnostic
Your race, ethnicity and religion also do not matter
Why CIBIL scores matter to your credit worthiness?
CIBIL score is not exactly a barometer of your credit worthiness but it gives banks a basic idea of your past repayment track record. Here is why it matters.
CIBIL scores matter for loan approvals because banks check your CIBIL score through CIBIL. CIBIL score is the benchmark that will help you avail loans faster and easier.
When you apply for any loan or credit card at a bank or a financial institution, the lender checks the credit or CIBIL score first to determine if the applicant is eligible to avail the loan.
The lender will normally refuse to consider your application or outright reject an application if the CIBIL score doesn’t meet their expectations. Normally a score of 750 is treated as a cut-off below which it is hard to get loans approved.
CIBIL score is the main factor that determines your eligibility to avail a loan or a credit card as it also captures your financial journey.
Lenders need to know if you are a reliable candidate before granting you credit and CIBIL score helps in determining that.
A bad CIBIL score will mean that your chances of getting credit are lower or the credit may come at a higher cost.
A healthy CIBIL score will get you the best interest rates and terms. You can also bargain with the bank if you have a good score for lower rates and longer tenure.
Nowadays it is also easier to get accommodation on lease if your credit score is good as landlords and brokers also insisting on check your credit score before opting to sign the lease agreement
When you apply for a job to a bank or a financial institution, they also do a credit check with your CIBIL score to ensure that you are a trustworthy candidate.