There are times when you have to opt for a loan where your CIBIL score is the first requirement the bank asks to check your eligibility. But have you ever wondered what the bare minimum is and why it is so important? Well, do not worry! We are here to discuss the CIBIL score, its importance, and its implications. In this article, we have collated all the must-known facts about the CIBIL score—from its importance to its implications.
What is CIBIL Score/Credit Score?
A CIBIL score is a three-digit score between 300 – 900 that speaks a numeric summary of your credit history. It is calculated by the credit bureau, named TransUnion CIBIL, and derived using the Credit Information Report, which is an individual report based on the consistency in repayment of the current and previous loan. This is often required by lenders to check the creditworthiness of the borrowers.
Now, let’s understand why having a good credit score is important.
Minimum Credit Score
Having a minimum credit score is the first and foremost requirement to be eligible to apply for any of your loans, especially home loans. The minimum credit score to get your home loan sanctioned must be 750 or above, which may vary depending on the type of loan you apply for. In case you do not meet the minimum CIBIL score criterion, banks and other financial institutions will not approve your loan sanction request. This is because a bad CIBIL score has already created an impression that you are not committed to your responsibilities. Therefore, it is advisable to have a good CIBIL score which helps banks and financial institutions evaluate and understand whether the borrower can repay the loan. Therefore, the minimum credit score is your screening where you need to build trust through your credit score for repaying the loan amount on time.
A good CIBIL score improves your creditworthiness by tracking your financial history of credit repayment. It builds trust between you and your bank, ensuring that the loan drawn from the bank will be repaid and will not turn into a defaulter. Moreover, few banks and financial institution decides on home loan interest rate based on CIBIL score as it improves creditworthiness which helps them understand your commitment on the loan repayment. Moreover, less credit utilization ratio also helps in getting loan with ease Read more to find out about how credit utilization ratio can help in your loan approval process.
The process of loan application gets easier when you have a good CIBIL score. Yes, you read that right! A good CIBIL score helps you ease the struggle during home loan application approval. With a good credit score, you build your creditworthiness. Hence, banks or financial institutions will approve your loan application without much interrogation and investigation, as your CIBIL score has already spoken for your past financial history in volume.
However, if your CIBIL score is bad, check out how to increase CIBIL score to get your loan sanctioned in no time.
Interest rate Each bank or financial institution charges an interest rate on the loan-sanctioned amount depending upon the type of loan you have applied for. A good CIBIL score is a deal-breaker in personal loans where you have the say and power to choose the lender of your choice considering the interest rate and benefits in the future. You can even negotiate your interest rate, which improves your chances of getting your loan at a lower rate of interest. If compared with a personal loan, the interest rate on home loans is cheaper with a longer repayment tenure, while personal loan is offered for a limited tenure with high rate of interest.
Wondering how your CIBIL score would impact the loan amount? Well, the CIBIL score is used by banks to determine how large the ticket size should be approved. Yes, that’s true! Banks work on a simple formula—the higher the CIBIL score, the bigger the loan amount sanctioned. Based on this formula, banks can more easily identify good loan borrowers who will repay the loan amount following their loan schedule. However, if you have failed any EMIs due to any reason and it has impacted your credit score, check out how you can increase the CIBIL score.
Besides, many companies check the CIBIL score of the candidates before hiring. Even the landlords check the CIBIL score before renting out their property, which ultimately makes it imperative for one to maintain a good credit score for professional as well as for personal life.