Crack the Code: How your CIBIL score works and why it’s the Master Key to Easy Loan Approvals?

Your CIBIL Score (300-900) is key to loan approval. A score of 750 or above ensures fast approval and better interest rates. Pay EMIs on time to maintain a healthy score.

Your CIBIL score could make or break your loan and credit card applications. Banks and NBFCs check your credit score before approving loans. You must have been asked to provide your CIBIL score while applying for a personal loan or home loan or a car loan. Credit bureaus such as TransUnion CIBIL provide each of us with a CIBIL score. But, what does CIBIL score mean, and how can you find out your CIBIL score? Knowing this number is essential to plan your loan or credit card applications and get fast approval.

What Is CIBIL Score?

CIBIL score is a three-digit number between 300 and 900 that reflects your credit history and creditworthiness. The higher the score, the better your credit history of repaying EMIs or credit card bills.

CIBIL score range

1. Credit score below 300 – Extremely low
2. Score between 300 and 549 – Very poor
3. Score between 550 and 649 – Poor
4. Score between 650 and 749 – Fair
5. Score 750 or above – Excellent

A high CIBIL score makes you a good candidate for loan or credit card applications. Your CIBIL score, therefore, has an important role to play in deciding the fate of your loan and credit card applications.

As your CIBIL score is based on the history of your repayment habits, let’s quickly review some smart ways you can keep this number on your side.

Tip 1: Pay all your EMIs and credit card dues on time

Tip 2: Maintain low credit card usage or credit utilization ratio

Tip 3: Do not apply for multiple loans and credit cards in a short period

Tip 4: Keep a healthy mix of secured and unsecured loans

Tip 5: Regularly review your credit report for any discrepancies and report them immediately

The Importance of CIBIL Score

Banks and NBFCs do a credit check before approving any loan or credit card application. Your CIBIL score, therefore, plays a significant role in the loan approval process. A high CIBIL score has the power to instantly get you your loan or credit card approved with attractive interest rates and repayment terms. A low credit score, on the other hand, may either get your loan application rejected or approved only at high interest rates. Your CIBIL score matters the most for those loan applications where you have a credit score below 750. In such cases, you will have to work harder to get your loan application approved.

As an example, consider Mr. and Mrs. X who applied for a ₹10 lakh loan on the same day and with the same bank. The lender offered Mr. X a lower interest rate and a faster approval, while Mrs. X was offered a higher interest rate and a delayed loan approval simply because their CIBIL scores were different.

Understanding Your CIBIL Score

To better understand how CIBIL score impacts loan and credit card approval process, let’s have a look at how banks and NBFCs view this credit score.

• Credit score above 750

If your credit score is between 750 to 900, you have the best chance of getting your loan approved instantly.

• Credit score between 650 to 750

If your credit score is in this range, you have good chances of getting your loan approved, though the bank may charge a slightly higher interest rate than normal.

• Credit score below 650

If your credit score is below 650, you will need to work harder to get your loan approved. The bank may offer a higher interest rate and a shorter repayment period. The chances of your loan application being rejected in this case are very high.

How Is CIBIL Score Calculated?

The credit score in India is calculated based on a weighted analysis of various factors that range from your repayment history to your overall credit utilisation to the length of your credit history.

CIBIL Score components and their weightage

1. Repayment history – 35%
2. Credit utilisation ratio – 30%
3. Length of credit history – 15%
4. Credit mix – 10%
5. New credit inquiries – 10%

What is a Good CIBIL Score?

The higher your CIBIL score, the better. A good CIBIL score means you are a low-risk borrower and an ideal candidate for loan and credit card applications. A score of 750 or more is considered to be good and you will get the best interest rates and fast loan approval.

A lower score is generally below 650 and is a sign that you need to improve your repayment habits.

Here are some ways to help you increase your credit score.

1. Pay all your EMIs and credit card dues on time
2. Maintain a low credit card utilisation ratio
3. Apply for loans and credit cards only when needed
4. Have a good mix of secured and unsecured credit
5. Keep all your old credit accounts active

The Bottom Line

Your CIBIL score (credit score) is the most important part of getting a loan approved.

• A high score gets your loan or credit card approved quickly and easily. It also gives you power to ask for better interest rates and more time to pay back the loan.
• A low score makes the bank ask for a lot of extra work, and you might struggle to get the loan at all.