CIBIL Score: Everything You Need to Know From Meaning to Importance

It’s no secret that a good CIBIL score is essential for obtaining loans and credit cards. You must’ve encountered this fact many times while researching personal loans and credits. But what exactly is a CIBIL/credit score, how is it calculated and maintained, and why is it so important?

This blog post answers all these critical questions for you. Let’s start!

What is CIBIL Score?

A CIBIL or credit score is a three-digit number ranging from 300 to 900. It is used to represent an individual’s creditworthiness. A higher CIBIL score means lower risk to lenders.

Thus you are more likely to be approved for loans and credit cards if you maintain a high CIBIL score. A credit score of 700 is generally considered safe.

There are many benefits to having a good CIBIL score, including lower interest rates on loans, higher credit limits, and more favorable terms and conditions on credit products.

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How is CIBIL Score or Credit Score Calculated?

Credit scores are calculated using several factors, including payment history, outstanding debt, length of credit history, and more.

However, payment history is the most crucial factor in calculating your score. Here’s an idea of what weightage a credit bureau gives each element.

  • Credit mix: 10%
  • New credit: 10%
  • Credit history Length: 15%
  • Credit utilization: 30%
  • Payment history: 35%

So if you consistently pay your bills on time, you can easily maintain a good credit score.

What are the Benefits of Maintaining a Good Credit Score?

Benefits of Maintaining a Good Credit Score

Now that you know how to maintain a good CIBIL score let’s check out the 6 most important benefits you enjoy by keeping it high!

  1. You Get Loans at Lower Rates

If you have a good credit score, you can get loans at a lower interest rate. This is because lenders perceive you as a low-risk borrower and are hence willing to offer you loans at lower interest rates.

Even the smallest decline in your interest rate significantly impacts your EMI and, ultimately, your financial growth.

  1. Your Loans & Credit Cards Get Approved Quickly

You will likely get your loan or credit card application approved quickly if you have a good credit score. Lenders immediately clear your loan or credit card application when they see responsible credit behavior.

You can also get your credit limit increased easily. However, remember to continue your good credit habits to keep enjoying these sweet fruits of a good CIBIL score.

  1. Your Chances of Getting a Long Tenure Loan Increases

Lenders don’t prefer to give longer tenure loans as they presume it to be risky. But, if you have a good credit score, you have a higher chance of getting a loan with a longer tenure.

This is because lenders consider their repayment is sure, with a borrower holding a good credit score. The amount of your EMIs is lesser with longer tenure loans. This makes it easy for you to manage your monthly budget with the loan.

  1. You Get Access to the Most Rewarding Credit Cards

If you have a good credit score, you will have access to the best credit cards with the most attractive rewards programs, cash-back, offers, and discounts. The credit card companies which provide these benefits prefer to give credit to the best of borrowers only.

By maintaining a good credit score, you immediately come into the good books of such credit card providers.

  1. You Become Eligible for a Pre-Approved Loan

If you have a good credit score, you may be eligible for a pre-approved loan offer from a lender. In most cases, banks and financial institutions offer pre-approved loans to customers who have an old association with them and maintain a good credit score.

This is a great benefit as it saves you the time and effort of applying for a loan.

  1. You Get Higher Limits on Your Credit Card

The limit on your credit card is decided based on your income and credit score. If you have a good credit score, you will find it easier to get higher limits on your credit card.

This is because lenders view you as a low-risk borrower and are happy to offer you a higher credit card limit.

In conclusion, maintaining a good CIBIL score is essential for many reasons. It can help you get a loan, a credit card, a job, and insurance. It can also help you get a lower interest rate on loans.

If you have a bad CIBIL score, it can cost you money and make it hard to get the things you need. So keep an eye on your CIBIL score and ensure it stays high.

Author Bio: Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters, and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected]

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