A credit score is a numerical evaluation of an individual’s creditworthiness, ranging typically from 300 to 900. (Representative image)
Keep your credit utilisation ratio below 30% to maintain a healthy CIBIL score.
A CIBIL score is crucial when applying for a loan. A low score can not only make loans more expensive but also reduce your chances of securing one. The CIBIL score reflects an individual’s credit behaviour and loan history. Here’s a breakdown of the CIBIL score and ways to improve it:
Tips to Improve and Maintain Your CIBIL Score:
Maintaining a good credit score is important for obtaining loans or credit cards from any financial institution. Here are some essential tips to enhance your CIBIL score:
1. Limit Credit Utilisation: Keep your credit utilisation ratio below 30% to maintain a healthy CIBIL score. If you are nearing your current limit, consider increasing your credit card limit to ensure you stay within this range.
2. Timely Repayments: Timely repayment of loans or credit card dues has a major impact on your CIBIL score. Always ensure that all payments are made on or before the due date.
3. Diversify Your Loan Portfolio: A balanced mix of secured and unsecured loans can improve your credit score. Credit cards represent unsecured debt, while loans such as home or vehicle loans are secured. Having a good balance between these types of debt can positively affect your score.
What is a CIBIL Score?
The CIBIL score is a three-digit number ranging from 300 to 900, with a higher score reflecting better credit health. Generally, a score above 750 is considered good and increases the likelihood of loan approval. This score is detailed in a CIBIL Report, which provides a record of an individual’s credit history.
The CIBIL report enables banks to assess an individual’s financial habits, such as whether they have defaulted on previous loans, how many loans they have taken, and their repayment history. This helps lenders minimise risk by offering insight into a borrower’s creditworthiness, allowing them to make informed decisions and reduce default losses.
CIBIL Score and Loan Rate
Apart from easy approval of the loans, a good CIBIL score also helps the borrowers get cheaper loans. For instance, State Bank of India (SBI) offers loan rates based on the credit score of the borrower. The better the score, the cheaper the loans.
