Credit users must remain mindful of their CIBIL scores as these scores reflect their financial standing and creditworthiness and are one of the first things that lenders check about a loan or credit card applicant. An individual’s CIBIL report, on the other hand, presents a detailed account of their credit history and can prove useful in establishing reasons that add to or reduce one’s credit rating.
In this comprehensive guide on CIBIL score, we discuss CIBIL score ranges and the corrective measures that one can take to improve one’s CIBIL for home loans.
What is the CIBIL Score?
The Reserve Bank of India has authorized and regulates four credit information agencies. The most popular of these four is TransUnion CIBIL.
TransUnion CIBIL collects information from different financial institutions. It then studies the data collected to understand a credit user’s attitude towards credit repayment, and based on their findings, they assign the credit user a credit score. This credit score is called the CIBIL score. The CIBIL score ranges from 300 to 900, and a score from 750 to 900 is considered an ideal CIBIL for home loans.
CIBIL Score Ranges: What They Imply
Let us walk the readers of this article through the various CIBIL score ranges and what they mean for home loan approval.
Excellent (800 and above)
A CIBIL score in the range of 800 to 900 is considered excellent. Individuals with such a score are individuals with an unblemished repayment history and are perceived as very low-risk individuals by lenders. Consequentially, loan approval comes easily for such credit users, and their ability to negotiate favourable loan terms and conditions is also high.
Good (750 to 799)
A CIBIL score in the range of 750 to 799 is reflective of a commendable credit history and good credit management and repayment abilities. Keeping this in mind, lenders are quick to lend money to credit users with a good CIBIL score. They also offer loans to such individuals at reasonably low interest rates and show a willingness to negotiate on the loan amount and the loan tenor.
Fair (700 to 749)
A CIBIL score in this range is certainly not reflective of exemplary financial behaviour. However, it most certainly indicates a responsible attitude towards credit and its repayment. Individuals with a CIBIL score in this range get easy access to credit. However, the terms and conditions of the loan are not always beneficial.
Low (601 to 700)
Credit information agencies label credit users with a CIBIL score in this range as Subprime borrowers. Lenders perceive such credit users as high-risk borrowers, and access to credit can become difficult for such individuals. Adding a co-borrower or a loan guarantor can increase one’s chances of getting access to credit.
Low (300 to 599)
Individuals with CIBIL scores in this range are seen as very high-risk individuals who have a demonstrated history of reckless credit management. Thus, access to credit is nearly impossible for such individuals until and unless they take corrective measures and improve their credit scores.
Let us now delve into the corrective measures that one can take to improve one’s credit score.
Have a Low CIBIL Score? Here Are Some Corrective Measures
Improving one’s CIBIL score requires one to have a deep and clear understanding of the factors that impact one’s CIBIL rating. Five factors affect your CIBIL score: repayment history, credit utilization ratio, hard enquiries or dependency on credit, credit mix and age of credit history.
Keeping these factors in mind, we suggest some simple corrective measures that will help you build and maintain an excellent or good CIBIL score.
- An individual’s repayment history is the most important factor that affects their CIBIL score. Per CIBIL, repayment delinquencies of 30 days or higher can reduce a person’s CIBIL score by up to 100 points. Thus, to maintain and improve CIBIL score, one must maintain a clean repayment track record. This means never missing any EMI and credit card bill due dates. Even if you do miss a deadline, clear the pending EMI or bill as soon as possible.
- The credit utilization ratio is important as it reflects a user’s reliance on credit. A high credit utilization ratio indicates an excessive dependency on credit. Individuals with an excellent CIBIL score are people who maintain their credit utilization ratio under 30%.
- Loans are of two types: secured and unsecured. Secured loans are backed by security, and lenders perceive such loans as low-risk loans. The terms and conditions of such loans are more favourable to the borrower. Unsecured loans do not involve security and are seen as high-risk tools by lenders. Having a mix of both secured and unsecured loans helps establish one’s ability to handle all kinds of debt and aids in building a good CIBIL score.
- Lastly, one should never apply for too many loans or credit cards to avoid having too many hard enquiries under one’s name. A high number of hard enquiries also indicate excessive dependency on credit and negatively impact a person’s CIBIL score.