CIBIL Score: Why is important?
Posted on Monday, October 3rd, 2016 | By IndusInd Bank
CIBIL, Credit Information Bureau India Limited, is an important part of the financial system in India as it provides critical credit information about every individual and rates them based on their creditworthiness. The system has its own way of analysis which results in a credit rating for every individual called the CIBIL score.
The CIBIL score is used by lenders, banks and credit card providers to assess an individualâ€™s credit history, the potential risk associated with the person and to approve their loan applications. The score is calculated using several factors, such as income, age, gender, education and existing bank accounts, and ranges between 300 and 900. Every bank and financial institution has its own benchmark of a good CIBIL score and scrutinizes loan applications based on these numbers.
How Reliable is a CIBIL Score?
CIBIL scores are derived using standardized algorithms without manual intervention. Thus the chances of error or manipulation are minimal. In case of queries, the individual can always approach CIBIL for clarifications.
Why is a CIBIL Score Important?
A good CIBIL score plays a significant role in the economic journey of an individual. The CIBIL score influences several financial facets for an individual such as:
Approval of Loans: Housing loans, vehicle loans and medical loans are some of the most commonly availed favours from a financial institution. Almost every Indian citizen avails a bank loan at least once in his lifetime. A good CIBIL score ensures easier and quicker approval of loans. In general, most banks consider it safe to sanction loans to individuals with a CIBIL score of 700 or more.
Better Interest Rates: CIBIL scores have a directly proportional relationship with bank interest rates. The better the score, the higher is the power to negotiate the rate of interest. In some cases, banks may also lower the processing fees for those candidates with a good CIBIL score.
Easier Credit Card Approvals: Credit cards have become an important part of todayâ€™s lifestyle. Paying through credit cards offers a number of benefits like customer rewards, money-back offers and special discounts in the consumption of essential entities like fuel. The CIBIL score is used to determine your eligibility for credit card approvals and the granted credit limit on the card. A good CIBIL score offers several credit card options to choose from and makes the entire process hassle-free. It is important to remember that balance transfers to a new card or closing your existing credit cards impacts the credit utilization and may be reflected through the CIBIL score.