Financial health is an integral part of one’s overall well-being. Financially sound individuals are known to live stress-free lives and make way smarter decisions when it comes to shopping on EMI and credit card usage. Being financially independent is a goal that most people aspire to achieve. However, managing finances and credit can be a challenging task. Understanding your creditworthiness and the factors that affect it can help you make informed decisions regarding your financial health.
One essential factor that determines your creditworthiness is your CIBIL score. A CIBIL score is a three-digit numeric summary of your creditworthiness. It ranges from 300 to 900. This score is like a report card that reflects your credit history and is used by lenders to determine your ability to repay the borrowed amount. CIBIL score meaning can be extended as Credit Information Bureau India Limited, which is the country’s first credit information company. It was established in 2000 and is responsible for maintaining credit records of individuals and companies across the country.
CIBIL scores are vital for numerous financial transactions such as availing of loans, credit cards, and shopping on EMI. It helps lenders to evaluate your creditworthiness and enables you to avail of financial facilities at lower interest rates. An excellent CIBIL score can help you negotiate better terms and conditions for loans, credit cards, and other financial products.
How is the CIBIL score calculated?
CIBIL Scores are calculated based on your credit history. Credit card usage, loan repayment history, credit card bill payments, and outstanding debts are significant factors that affect your credit score. Your CIBIL score gets calculated based on the following factors:
Credit History – It accounts for 35% of a CIBIL score. Factors such as loan repayments, credit card payments, pending dues, credit inquiries, and frequency of applications have a significant impact on your credit score.
Credit Utilization – It accounts for 30% of your CIBIL score. Credit utilization refers to the amount of credit used or borrowed in relation to the total credit available. High credit utilization hurts your credit score, while low utilization improves it.
Payment History – It accounts for 30% of your CIBIL score. Payment history reflects how promptly you have paid off your loans and credit balances. A delayed payment history can severely affect your credit score.
Credit Mix – It accounts for 5% of your CIBIL score. Credit mix is a blend of secured and unsecured loans such as home loans, personal loans, and credit card debts.
CIBIL score significance in availing financial facilities
A good CIBIL score is crucial for availing of financial facilities like loans, credit cards, and shopping on EMI. A CIBIL score of 750 or above is considered good. If your score is less than 750, you may not qualify for a loan or credit card. You may also be charged higher interest rates, longer loan tenures or rejected altogether. Your CIBIL score determines whether you are creditworthy or a high-risk borrower. A CIBIL score creates a first impression for lenders, and they may decide whether to approve a loan or credit card based on your CIBIL score.
For instance, if you are looking to purchase a house, applying for a home loan is the way to go. Your CIBIL score acts as a doorway towards availing of a home loan. Lenders rely on your CIBIL score to evaluate whether you will be able to repay the borrowed amount. With a low CIBIL score, the chances of getting a home loan approved are bleak. Furthermore, the interest rates on home loans with a lower CIBIL score are higher as compared to people with a good credit score.
In the case of credit cards, a good CIBIL score is essential to get approval for higher credit limits, and your application is likely to face quicker approval. Moreover, a good CIBIL score helps you avoid the trap of settling for low credit limits or cards with higher-interest rates. It also offers attractive discounts, rewards, cashback benefits, and other perks that come along with higher credit limits.
Similarly, shopping on EMI also requires a good CIBIL score. Shopping on EMI allows you to purchase a product and pay for it in installments over a specific period. However, it is essential to understand that when shopping on EMI, it is like borrowing indirectly from the bank. Shopping on EMI always goes through a bank or a finance company. And the only way a bank approves a loan is if they believe that the borrower will repay it. Meaning if you have a good CIBIL score, higher are the chances of getting your EMI request approved.
How to improve your CIBIL score?
It is essential to maintain a good CIBIL score for financial stability. There are numerous ways to improve your credit score, such as:
– Make payments on time- Ensure timely payments of credit card bills and loan repayments to avoid late payment charges.
– Keep credit utilization low – Avoid high credit utilization, which may adversely affect your credit score.
– Check your credit report for errors – Look out for any incorrect details like mistaken loan inquiries or inaccurate personal information that may hamper your score.
– Avoid multiple credit applications – Apply for credit cards or loans only when required, as frequent credit inquiries can lower your credit score.
– Repay old debts – Focus on paying off outstanding debts first.
The CIBIL score meaning holds immense significance in the world of finance. It is essential to maintain a good credit score for hassle-free transactions and financial stability. Always manage your finances smartly, pay credit card bills and loan EMIs on time, and keep your credit utilization low. This will ensure you maintain a good credit score and enjoy the perks of easy financial facilities. Understanding the significance of a CIBIL score and how it works can go a long way in ensuring you are well-informed of your financial standing and help you plan your finances better.