You may have heard the terms CIBIL and credit scores often. You should know your CIBIL score well if you are considering applying for a Credit Card or Loan. Let us understand credit scores better.
About credit scores
Your credit score represents your creditworthiness numerically. It tells your bank about your ability to repay the amount you borrow. The credit score represents your past credit behaviour. It also says how well you have managed your credit products, like a Home Loan, Car Loan, Personal Loan, or Credit Card.
Generally, your CIBIL score is a three-digit score that ranges from 300 to 900. Credit and CIBIL scores are often used interchangeably. However, CIBIL is one of India's most trusted credit information companies. It collects credit information and history of individuals. Due to its stellar reputation, the CIBIL score is often called the credit score in India.
Why is the credit score crucial?
The credit score of an individual enables banks to decide if they are a good candidate to lend money to. This could be as Loans, Credit Cards, etc. For example, if you want to apply for a Personal Loan to cover the expenses of a family event or to pay for urgent medical expenses, your credit score plays a crucial role. Suppose you have a low credit score. In such a case, the Personal Loan application may not be approved.
Hence, checking your credit score before applying for a Loan can be a good idea. Nowadays, you can also conveniently take advantage of a CIBIL score check free online. Usually, scores of 750 and higher are a good credit score.
Factors affecting credit scores
The credit score may be affected by various factors:
Your payment history, like how you pay your Credit Card bills and Loan EMIs.
If you use more than 30% of your credit limit, it could impact your credit score negatively.
The length of your credit history.
Ways to improve credit scores
You could boost your credit score using the following methods:
Pay your equated monthly instalments on time
Paying your EMIs is not enough. Instead, you need to pay them on time. Not paying your EMIs on time can negatively affect your credit score.
Borrow a mix of credit
You build a credit score only when you borrow credit. Besides, borrowing only a single type of credit will not boost your credit score. Instead, it is best to borrow a mix of credit to boost your CIBIL score.
Limit your credit utilisation
When using credit, it is important to stay below the limit. You should also use as much credit as you can repay.
Conclusion
Now that you know about credit score and its various aspects, take steps to strengthen it. Once you do that, you can apply for different Loans.