How Is Your CIBIL Score Calculated
Loans are considered indispensable in today’s fast-paced environment. Individuals require loans to meet their short-term and long-term financial needs while businesses are in need of funds for their day-to-day business operations or business-related activities. Such a need for borrowing entails that the borrower has a good CIBIL score. Lenders tend to prefer borrowers with a good CIBIL score as this helps them in evaluating the potential creditworthiness before signing the loan agreement.
What is a CIBIL Score?
CIBIL is one of the top credit bureaus in India which provides credit information report for individuals and businesses. CIBIL score is a part of this comprehensive credit information report and is integral to the lending framework of India. CIBIL score is a 3-digit numeric data that is calculated based on a borrower’s credit history and helps banks and financial institutions in assessing the borrower’s creditworthiness and financial discipline towards repaying potential loans.
How is your CIBIL Score calculated?
Your CIBIL score reflects your credit history, which is nothing but an indicator of your past repayment patterns. This could include your credit card payments and EMI clearance. CIBIL receives information from your lenders about your credit history like past loan repayment patterns, any outstanding on loan, past/current defaults, etc. This crucial data is then collated and weightage is provided according to how the key elements have been fulfilled. CIBIL score is calculated on an ongoing basis by the credit bureau as part of its credit information report. Lenders then assess such CIBIL scores to evaluate your creditworthiness and potential loan repaying capability.
What is a good CIBIL Score?
CIBIL score is normally in the range of 300 – 900. A CIBIL score between 700 – 900 is considered as an excellent score with 900 being the maximum limit. Such a high score assures lenders of your financial capability to repay loans on time, so a borrower can be assured of his/her loan applications getting approved in a hassle-free manner. Lenders would exercise caution against borrowers with low credit scores but may still grant them loans if they fulfil other eligibility criteria for loan approval. An extremely low credit score of around 300 would ultimately lead to loan or credit card applications getting rejected at the onset.
There are various reasons which could lead to a low CIBIL score. Important ones being incorrect personal details provided to the lenders, any outstanding debt, availing multiple loans at one time, default in loan or credit card payment or overutilization of credit card sanctioned limit.
Does this mean that borrowers with a low credit score cannot work towards improving their CIBIL score?
Borrowers need not lose hope. By making changes to your financial behavior and following financial discipline, a borrower can certainly improve upon their CIBIL score and chances of getting potential loans in a quick and easy manner. It is wise to use the EMI calculator in instant loan apps. This lets borrowers decide their EMIs in advance and then proceed with the loan application. If EMIs are affordable at the first step, there will be no stress of EMI repayment during the loan tenure and the CIBIL score will also remain intact.