Understand The CIBIL Score System Completely

Posted by Divya Kapoor on March 13th, 2019

CIBIL (Credit Information Bureau India Limited) was formulated in 2000 to keep track of the information of all consumers with their banks, private lending agencies, financial institutions, credit card companies).

CIBIL stores the credit information regarding all types of loans like personal loans, vehicle loans, home loans, and others) and credit facilities and generates the CIBIL score for every member. Even though there are many credit rating agencies in India, but CIBIL is considered as the most significant factor for availing credit in the country.

 

Importance of the CIBIL score

A CIBIL score is mandatory because,

  • Faster and simple approval of the loan.

  • The rate of interest of the loans of an individual depends on the credit score.

  • The ISO 27001 security certificate makes it very reliable.

  •  Employee authenticity is also evaluated on the credit score.

  • Employers use this score to track the authenticity of potential employees.

What's a good CIBIL score?

CIBIL score generally ranges from 300, and 900 and banks and other financial institutions consider 750 and above the ideal score for availing credit. So if you are near to 900, you are eligible to get the loan quickly. And if an individual is less than six months old in the credit system, the credit is evaluated on the index of 1 and 5. The higher the index, the higher is the credit approval eligibility.

Factors influencing the CIBIL score

Repayment of the existing credits is the most critical factor impacting the credit score. The other factor includes the credit balance, the number of credit cards pursued by the consumer, the secured and unsecured loans, and likewise.

Different types of loans and credit scores

All the banks and financial institutions utilize the credit score to approve the loans. The different types of loans are explained below:

Education Loan

Since the students seeking an education loan don’t have credit scoring, then, in this case, the credit history of the guarantor (parent or guardian)is evaluated. The credit agencies providing Education loans have their own credit system which includes CIBIL score along with the college or university, education centre, degree pursuing and many more to approve this loan.

Personal Loan

Personal loans are the most unsecured loans which are accompanied by higher risks and thus make CIBIL score mandatory. An individual having less than 750 credit score is not approved credit easily.

Housing Loan

For home loans, different banks have different permissible value based on the CIBIL score. Home loans are generally granted above the score of 700. An individual having more than 750 scores, the interest charged is 4% or less. Since home loans are for long periods, so even a 1% difference in the interest rate impacts the financial condition of the borrower.

Vehicle Loan

Vehicle loans are less risky as the vehicles bought serves as the collateral against the loan pursued. So, banks generally sanction the loan with a credit score above 600 even, but yet a good score here is needed to avail a low rate of interest.

Business Loan

A business loan is generally of a very high value and requires a very strong credit score to apply for it. The minimum scoring needed for the business loan is 700. Below this limit, the loan applications get rejected. The higher the scoring, the better the chances of availing business loans with less rate of interest.

Apart from loans, credit card approval also depends on the CIBIL score. If an individual has less than 750 CIBIL scores usually takes a longer time to get approval, low credit limits and a high rate of interest on the balance payments.

READ ALSO: Help yourself to Improve your CIBIL score

 

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Divya Kapoor

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Divya Kapoor
Joined: March 13th, 2019
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