How does the Cibil Score affect your creditworthiness?
Buying a home is perhaps one of the biggest decisions anyone can make. It’s a huge investment and requires a lot of research and planning. Budget plays an important role in the decision-making process and therefore people typically opt for home loans to finance the purchase. Due to the pandemic, loan interest rates have never been lower. That makes the current time favorable to take the big leap: applying for a home loan.
However, the loan application process is not easy. Before lending, banks ensure that the applicant can repay the loan on time. In other words, they check the applicant’s eligibility. But what does it take to get a loan? Let’s find out.
Top eligibility criteria for the loan application
Loans provide financial leverage that goes beyond your own income. Whether a home loan, personal loan or other loan, the loan is granted by the lender based on certain key data. In India, a borrower’s eligibility is determined by their CIBIL score.
Credit Information Bureau India Limited (CIBIL) is a credit information company and part of TransUnion that has been operating in India since August 2000. CIBIL collects and maintains credit records from individuals and business organizations. The CIBIL score is a three-digit number between 300 and 900 and is calculated based on a person’s credit or credit history. The higher the CIBIL score, the more convinced the lender is of the borrower’s ability to repay.
How does your CIBIL score correspond to eligibility for a loan?
As the saying goes, the more the better. This also applies to the CIBIL score. A high score means your application will be processed faster, the interest rates are easily negotiable, and you can raise a large amount of money. A low CIBIL score indicates an unstable financial situation and a reduced ability to repay. Missed payments, multiple loans, frequent loan inquiries, a high loan utilization rate, inaccurate loan type management, and a zero loan history can all result in a low CIBIL score.
If you are new to the credit industry, banks will determine your creditworthiness based on factors other than your creditworthiness or history. This includes your existing repayment ability, which depends on your income and your employment stability. In such cases, you can speed up the credit process by setting up a credit account and maintaining it to build a good CIBIL score.
How Can You Improve Your Credit Score?
1. On-time repayment: It is important to maintain a consistent and timely repayment schedule in order to build your credit score. This can pave the way for lenders to trust you more and consider lending you larger loans in the future. In addition, paying off the debt will reduce the interest burden on you.
2. Payment of past bills: Banks look at borrowers’ histories to determine their creditworthiness. Keeping a record of on-time and consistent payments over a long period of time is critical to building a good credit history, which is reflected in a higher CIBIL score.
3. Debt Consolidation: You can try consolidating all of your existing debts into one to reduce the repayment burden. Credit consolidation helps you build your credit score by reducing the amount of interest you pay on various loans and bills, thereby improving your credit score.
4. Credit diversification: If you don’t have a credit history, your CIBIL score will be low. In such a case, make sure that you borrow different types of credit. Obtaining loans, both safe and unsecured, of varying lengths and maturities will help you improve your score.
5. Verification of the credit report: Sometimes errors can creep in when CIBIL updates your records. This can have an impact on your creditworthiness through no fault of your own. So it is advisable to check your CIBIL report from time to time. This will allow you to identify and correct mistakes by submitting a CIBIL dispute resolution form online. It also gives you a glimpse into your CIBIL score and helps you understand how lenders see your financial history over time and how you can improve it in the future.
6. Avoid taking on too much debt at once: Do not take out a large loan or multiple loans if you are unable to repay the amount borrowed in a timely manner. Before applying for a loan, do some research on the market and see how much you will need for your housing project. Keep in mind that you have other expenses like renovating and furnishing your new home as well.
7. Lower credit utilization: A higher credit load is usually associated with borrowers who take on large amounts of debt. In such cases, it becomes difficult to maintain good financial discipline and repay the loan on time; Hence, the lender cannot trust the borrower. Using less than 30 percent of the total available limit is a good rule of thumb to help improve your credit score.
In conclusion, it is important to make sure you are eligible for a loan before applying for one. A CIBIL score isn’t the only criteria in determining your eligibility, but it’s the most convenient as it gives a quick indication of your creditworthiness over time.
The author, Amit Agarwal, is the co-founder and CEO of NoBroker.com. The views expressed are personal
(Edited by : Anshul)
First published: IS