Wealth planners often stress on the need to maintain a healthy CIBIL score for securing a loan. But what is CIBIL score and why is it essential to focus on the CIBIL score for one's credit profile? CIBIL score reflects the creditworthiness of an individual, which is maintained by TransUnion CIBIL. Simply put, the organisation rates an individual's credit worthiness on the basis of loans taken and repayment history. It was established in the year 2000. CIBIL sources financial data such as loan and credit card information from leading banks and other financial institutions.
Here are five things to know about CIBIL Score:
What is CIBIL Score?
CIBIL is a leading credit bureau in India. It generates a credit report and a three-digit number ranging from 300 to 900 to define the creditworthiness of an individual. A credit report is a record of the activity on credit accounts. It is generated on the basis of credit information collected from member banks and credit institutions over a period of time. Credit score (commonly known as CIBIL Score) is an objective measurement of creditworthiness based on credit report information.
Importance of CIBIL Score
A CIBIL Score plays a crucial role in gauging a person's credit worthiness and deciding on credit disbursement. Banks and other financial institutions check an individual's credit history before approving loan applications as this indicates financial stability and capability to repay a loan.
A higher CIBIL score boosts the prospects of getting a loan and at a favorable rate of interest. On the other hand, a low score can damage the chances of tapping finance. The minimum CIBIL score required to get a personal loan is 750 or higher. Creditworthiness is affected by factors such as existing debt and high credit card balances.
How to Maintain A Healthy CIBIL Score
The first step to maintain a healthy CIBIL score is to build a positive payment history. This can be achieved by making timely payments of all your EMIs and credit card bills. Timely payments improve creditworthiness and heighten the likelihood of getting credit cards and loan approvals. One should avoid having a credit card that is not used. As far as loans are concerned, it is a good idea to opt for a bigger down payment, make bigger down payment on loans, choose longer loan tenors and consider part-prepayments. A proper repayment plan should be in place at all times.
How to find the CIBIL Score
Getting a CIBIL Score and Report is a simple process
Step 1: Visit the website: CIBIL.com
Step 2: Create an Account (Create your own username, password, and enter your name, email id and mobile number)
Step 3: Enter personal details (date of birth, address, Aadhaar number, pan card numer)
Step 4: Verify your identity (with the help of OTP or some additional personal questions)
Step 5: Accept terms and conditions.
That's it; CIBIL will display the Credit Information Report (CIR).
How to read the CIBIL Score
A CIBIL Report has detailed information on the credit availed till date, including home loan, personal loan, credit card and overdraft facilities. The CIBIL score, as reflected in the 'Accounts' and 'Enquiries' section of the CIBIL Report, ranges between 300 and 900. A score above 700 is generally considered good. The CIBIL report contains various sections:
This section contains the name, date of birth, gender and identification numbers such as PAN, passport number and voter's number, besides address and telephone numbers.
Employment Information and income details, as reported by the member banks and financial institutions.
This section contains the details of past credit, including name of lenders, type of credit, account numbers, etc.
The full credit report is available for free once a year. You have to pay Rs 550/- to get the report on more than one occasion annually. The CIBIL website also offers some paid subscription plans, which are worth checking.
The bottom-line is that financial health is as important as physical health and getting a pulse-check on financial health is the way to go.