There is a misconception that buying credit cards is unnecessary and can lead you to fall into a rabbit hole of debt and unnecessary expenses. In fact, a CIBIL score is very much necessary if you are ever in need of additional funds and want to approach a lender for a loan or credit card. Without a credit or CIBIL score, lenders do not even consider loan applications. But what is a CIBIL score and CIBIL report? And how do you build a good CIBIL score range? Read on to find out. 
 

What is a CIBIL score?
 

CIBIL stands for the Credit Information Bureau Limited. CIBIL is a credit rating agency. Its core job is to evaluate how responsible are individuals and companies with their loan payments and credit transactions through a CIBIL score and CIBIL report.
 

A CIBIL score is a three-digit score rating your credit history, credit mix, past debt, present payments, and overall credit behaviour. In the financial world, having a CIBIL score and credit activity within the acceptable parameters is essential for taking on a loan of any type.
 

A CIBIL report indicates to lenders whether you are eligible for taking credit and repaying it within the given time frame. A CIBIL score is also reflected on your CIBIL report, which also consists of other information like your contact details, employment information, and credit summary. Lenders consider both CIBIL score and CIBIL report to check loan eligibility. The CIBIL score range starts from 300 and goes up to 900.
 

A score between:
 

• 300 and 549 is poor.
• 550 and 700 is average.
• 700 and 750 is good.
• 750 and 900 are excellent.
   

A score between 700-900 instils confidence in a lender about your repayment capacity. If you find your credit score lesser than 700, here are a few ways you can get the best CIBIL score for loans and credit card applications.
 

How Can I Build a Good CIBIL Score?
 

 

• Pay your EMIs on time.
  
  One of the best ways to come to a good CIBIL score range is to pay your loan or credit card EMIs on time and not make any defaults. Any delay or default in clearing your EMIs can reflect badly on your CIBIL report and impact your CIBIL score.
  
  Moreover, defaulting on payments can also increase the interest payable on a loan. A wise way to avoid making defaults or late payments is to switch to an auto-payment mode. So every month, loan payments will get deducted automatically. You can also add reminders.
  
  
• Stick to a balanced credit utilisation ratio.
  
  As in any aspect of life, balance is crucial in building a good CIBIL score range. Lenders will also check your credit card utilisation ratio. Every credit card has a limit up to which you can spend. Whatever that upper limit is, spending up to 30% of the credit card utilisation ratio is advisable as lenders consider it a healthy spending limit.
  
  On the opposite end of the spectrum, having a credit limit but not making any spending or transactions is harmful to your CIBIL score. If you want to increase your spending, do not cross 30% - increase the credit card spending limit.
  
  
• Do not apply for multiple credit applications at one time.
  
  When you apply for multiple credit options at one time, it indicates to lenders that you are grabbing for more than what you can reach. Frequent loan applications and recurrent credit card applications might work against your favour by showcasing to lenders that you do not have enough finances and are hungry for credit.
  
  Opening new lines of credit sparks a hard inquiry/ detailed inquiry into your credit profile and CIBIL report – and multiple hard enquiries do not fare well on a CIBIL report. The extra credit purchases can flag you as a more-risk borrower and affect your CIBIL score negatively.
  
  
• Choose a mix of different credit types.
  
  To come to the best CIBIL score for loans and maintain a good CIBIL score range, it is wise to opt for various credit types. Instead of just opting for a secured loan or an unsecured loan, try and get both loan types.
  
  Unsecured loans like personal loans, education loans, or business loans are often considered more risky. They can harm your CIBIL score because they are collateral-free loans. But adding secured loans like a home loan, vehicle loan, or loan against property can convey to lenders you have assets and a strong repayment capacity.
  
  
• Do not remove old debt history from your credit report.
  
  You might think that having a clean slate and removing old debt is a smart way to boost your CIBIL score. But that is counterproductive. Keeping the records of your previous loans and borrowings reflects your past credit behaviour.
  
  When the lender sees a stable credit history with timely repayments, a borrower's creditworthiness increases. Clearing old debt off your CIBIL report nullifies any long-standing relationship with a bank or lending institution.
   

Can a Life Cover Policy Affect the CIBIL score?
 

A life cover policy does not affect the CIBIL score directly but has indirect consequences. For instance, if an existing borrower is paying off any loan and happens to have an accident, they can face severe consequences like a permanent disability.
 

To Conclude
 

Maintaining a good credit score is a continuous process. Using these ways above can help you build a good CIBIL score. If you want to create a credit score from scratch, you need to apply for a credit card or take a loan to start your CIBIL score journey.
 

L&C/Advt/2022/Nov/2791