What is the meaning of CIBIL score?

Unexpected expenses can come up in any person's life. At such times, taking a personal loan may be a more suitable option to finance emergency expenses rather than selling an asset.

Getting a personal loan is usually a simple affair. Most loan holders have a well-defined loan application process that includes a set of stipulations that every loan holder must fulfill. One of these stipulations is the CIBIL score.

cibil score

CIBIL score, or credit score , is a three-point number provided by credit bureaus such as TransUnion CIBIL, Equifax, Highmark and Experian. Credit scores for individuals range between 300 and 900. The CIBIL score finalises a person's credit history and repayment track record; the higher the score, the better when seeking a loan.

As a result, lenders consider people with a poor employment history or repayment track record as risky, so they use the CIBIL score to assess the creditworthiness of the borrower. Charter's collection rates and the loan amount given to the borrower are also based on the CIBIL score.

Here are a few things about CIBIL score to keep in mind while applying for a personal loan:

1) Ideal CIBIL Score:

Most lenders prefer a credit score of 750 and above for personal loans because of the reduced risk. A higher score helps in getting a larger loan at a lower interest rate and in a quicker time. If the CIBIL score is low, borrowers can work on improving their repayment track record and increase it gradually before taking a new loan.

2) Factors affecting CIBIL score:

An individual's payment history with respect to EMI or Credit Card EMI, income and repayment capacity and credit rating rate are some of the factors that determine the credit score.

If the borrower has a credit card, paying only the minimum due amount instead of paying the entire product amount on time is considered a positive sign and vice versa. Similarly, not paying, making late payments or having too many credit card or other loans is a negative sign.

3) Review Credit Report:

Credit bureaus provide one credit report per year free of cost to every lender. You can also buy CIBIL report on borrower requirement payment . One thing to keep in mind is that borrowers should not apply for too many loans as there may be multiple inquiries and may have a negative impact.

4) Ensure Error Correction Report:

Before applying for a loan, borrowers should thoroughly check their credit reports as mortgagees or debtors. For example, the credit report may show a closed loan as "not closed". Such incorrect information can lead to bad credit and even loan rejection. Therefore, loan investors should ensure that this is an unjustified error.

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Time for Personal Loan Application Having a good credit score not only helps in getting a loan but also helps in getting the loan from the preferred lender at a competitive enterprise and interest rate.

Hence, Cancerians should check their credit reports thoroughly and work towards building a healthy credit score, if necessary.

Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more