When you are taking any loan such as personal loans, business loans, home loan,s or any credit facilities from the bank. Firstly the bank will check your credit score. Whenever you required a loan or credit card, you go to the bank. The bank will tell you that I don’t believe you. So the bank will go to CIBIL, which is one organization which maintain the data, account and credit history of all the individual and businesses. On the basis of which it gives CIBIL score. So the bank will ask for your CIBIL score from the organization. And on the basis of your CIBIL score, they will give you a loan. In this article, we will discuss the CIBIL score in detail. Such as what is CIBIL Score, how to check CIBIL score free, and how to check credit score and credit report free.
What is CIBIL Score?
A CIBIL score is the three-digit credit score of an individual or a business that indicates his creditworthiness. Through the CIBIL score, banks do an assessment of whether the individual will pay back the loan or not. The range of CIBIL score is between 300-900. Additionally, all the banks and financial institution share their credit data with CIBIL. Due to which they know that how many loans did the customers have taken in past and have they paid their EMI on time or not. Also, the parent company of CIBIL is Transunion CIBIL which maintain the records of over 600 million individual and 32 million business in India. Hence, a better CIBIL score means you get cheaper loans and faster approvals. Moreover, a lower CIBIL score means delayed approvals and rejection of loans. Overall, 750+ is a good CIBIL score.
Why the CIBIL Score Drops?
Fail to Pay Loan Repayment
- Veritable finance hardship due to not having money for one month, having problems in jobs.
- Missed payments on credit card
- Dispute with lenders on account of fraud, extra charges, or annual fees.
The High Amount of Non-Collateral Loan
- If you have taken a high amount of unsecured credit facilities such as credit cards or home loans.
- Due to less/ no secured debt, your credit score can be impacted.
Effect of Leverage on CIBIL Score
- If you are using a maximum percentage of credit or loan limit, undoubtedly your cibil score can be impacted.
- If you have applied or enquire for more numbers of loan or credit card in a short period of time.
Effect of joint/Add On Credit/Insurer on CIBIL score
- If more than one person has taken the loan since the payment is done by one person but the credit score of both will be impacted.
- Add-On card impacts the credit score of the main card as well as adds on the cardholder.
- Guarantor in a loan also gets impacted in case of nonpayment by the borrower.
- If the company has taken the loan and you are the partner/proprietor/director/guarantor of the company. Then your credit score will also get affected in case of company default.
Incorrect Information on Credit Report
- Sometimes some incorrect information goes in the credit report such as an incorrect credit account.
- If you have done the full repayment of the loan and it is not reflected on the credit report.
- If you have settled the loan and it is not updated in the credit report.
Tips to Improve CIBIL Score
Pay all Loans/Credit Cards on Time
- Pay off your missed EMIs or credit card payments for 1-3 months once your situation is better.
- Adopt automatic payment modes such as ECS, PDCs, etc.
- In case of any dispute with the lender for fraudulent transactions, extra charges, annual fees, etc. Settle it as soon as possible and pay the agreed settlement amount.
Credit Mix and Duration
- Limit your unsecured credit such as credit card and personal loans, to less than 20% of your total credit limit.
- Also do not take more numbers of loans frequently.
Don’t be Credit Hungry
- Use your credit card for less than 30% of your monthly salary.
- Keep your EMI less than 40% of your monthly salary.
Control your Credit Card Well
- Do not take or apply for a number of credit cards.
- Make a complete payment of your monthly EMIs.
- In the case of veritable financial hardship, pay at least minimum debt.
- Keep the previous credit card with a good reimbursement history.
Alternative Loans/Credit Cards to Rebuild Credit History
- Take a loan against securities for example FD, LIC Policies, Gold Loan, Mutual Funds, etc.
- Take a credit card against securities.
- This will help you to rebuild your credit score if you are not getting any other form of credit.
Keep watch on Loan Account in Case
- You have a joint loan.
- You are a guarantor of a loan.
- Your company has taken a loan where you are a companion/executive/owner/insurer.
- To know more about the government loan scheme click here.
Report Inaccuracies to CIBIL once a year
- Read your credit report regularly.
- Do check for any incorrect open account.
- Check the discrepancies in the settled loan account.
- Report incorrectness to CIBIL consumer’s disputes resolution online.
- CIBIL will only report inaccuracies to the lenders but will update the credit data only once the lenders confirm.
Learn How to Check CIBIL/Credit Score for Free
- To check your CIBIL score for free, first, go to the official website of the cibil score.
- After that click on the button ‘Get your now’ on that page.
- Then on the next page, you have to make your own profile by entering your name, username, password and etc. And then click on the continue.
- On the next page, you have to fill in the details like address, date of birth, etc. And additionally, you have to provide your identity proof. Then click on the continue button.
- Then on the next page, you have to verify for identity proof. After that, you will receive your confirmation email on your provided mail id.
- Now you can click on the member login and enter your user id and password. After login, you can see your CIBIL score and many other details such as credit report and etc.
- You can also buy and upgrade your credit summary in the paid version of this website.
- This is how you can check your CIBIL score for free.
How to read Credit Report
While you check your credit score, read your credit report once. There is a total of five sections in the credit report. Let me understand this five-section in detail.
Personal Information – In this section, there is your personal information such as name, date of birth, gender, etc. And additionally, there is your identity proof, which you have provided during your profile making.
Contact Information – This section shows you your contact information such as an address, mobile number, office number, and mail id.
Employment Information – In this section, there is information about your monthly and annual income, and the last loan you have taken.
Account Information – This is the most important section of all because your CIBIL score is based on this information. It contains the details of all the credit cards and the loans you have applied for.
Enquiry Information – This is also an equally important section because your CIBIL score is also dependent on this section. It contains information about the enquired loan and credit cards.
How to take Loan with a Low CIBIL Score?
Take loan in Spouse’s name or Joint Loan
- You can take a joint loan or loan in spouse name, who has a good credit score. This will help you in getting home loans or bigger loans at the best interest rates.
Add a Guarantor
- Parents or relatives can be a guarantor.
- It is useful for educational loans, personal loans, etc.
Alternative Lending Institutions
- You can opt for other options such as cooperative banks or rural banks.
- Additionally, you can also take loans from HFCs, NBFCs, or microfinance companies.
- But here your interest rates will be higher.
Loan Against Securities
- You can take the loan against your securities such as fixed deposit, LIC Policies, gold, PPF, Mutual funds, Credit cards, etc.
- Here the interest rates can be a little higher than the home loan but will be much cheaper than personal loans.
- It also helps you to improve your CIBIL score for free.
Friends and Family
- You can take a loan from your friends and family by doing a loan agreement which includes interest and payment terms.
- Through these, you can also avail of tax benefits.
Corporate Loan Tie-ups for Salaried Class
- Banks will offer loans to the employees of reputed companies.
- It is only useful for smaller loans.
- You can also take loans from the private lenders in your cities.
- But here the interest rates will be very much higher, which is about 24-36%.
- It is also useful for smaller loans and for a lesser duration.
Peer to Peer Lending
- It is an organized form of private lending.
- Here the interest rates are between 15-30% and the loan tenure is between 6-36 months.
- It is not registered for RBI.
- It has no effect on the credit score.
Improve the CIBIL Score
- Built a good credit history.
- Maintain your credit score 750+.
FAQs Regarding CIBIL Score
No, CIBIL does not decide who will get a loan. It is just the credit rating agency that gives ratings to the customers.
CIBIL score is important for the easy availability of the loans, lowest interest rates, and it is the most important deciding factor in unsecured loans.
You may not require a loan at present time. But, in the future, you may require a loan. And, additionally, it requires patience to make a credit score of 750+.
750+ is a good score. 80% of loans are disbursed to 750+ scores.
650-750: Some banks or NBFCs may lend to you
<650: Very difficult to get a loan
Editor’s Note | CIBIL Score
As the COVID-19 pandemic has affected the whole world and its banking sector, Let’s talk about the effect of the COVID-19 on CIBIL score in India. As such, there is any severe change in the CIBIL score. But the government of India has decided that during the lockdown period if anybody is unable to do repayment of the EMIs. Their CIBIL score will not get affected. But this decision is only taken during the time of lockdown. But now it is normal and you have to do repayment of your EMIs on time. Else your credit score will be affected badly.