Cibil score is a term which, by now, we all must have come across at some point or the other. But what is it really?
What is cibil score? – put in a nutshell it is the way Transunion cibil maintains records of an individual’s payments and loans. It helps the credit institutions judge the risk if the loan or credit is granted and the likelihood of paybacks. This in turn decides the approval or rejection of applications. Essentially, a cibil score is an indicator of your credit health summarized into a three-digit number.
Why it matters? – the first impression goes a long way. When you submit a loan application the foremost document the lender refers to is your cibil and if the score is low, hands down your application would be straight away rejected because of the stringent norms that banks are adhering to, of late. And in the case of a positive cibil score, the lender then considers the application and starts determining the supplementary details.
Why should a home buyer be aware of cibil score? – when you are planning on investing in a new property, it goes without saying that you must have also considered in which institution you would apply for a home loan. Presently, 80% of the approved home loans are based on cibil, which is trusted to be a pivotal index of an individual’s financial disciplines over the past 36 months. Cibil has access to data on 400 million bank customers, which it uses to generate scores ranging from 300 to 900. And home loans are generally sanctioned for applicants with scores greater than 750.
Here are a few factors that levy utmost effect on your cibil score and ways to improve it:
|Deciding factors||How it affects your score||Ways to improve|
|Payment history||Making late payments or defaulting on your emis or dues shows you are burdened with existing credit commitments.||Keep automated reminders to clear dues and set aside some money for the credit commitments first and then spend the rest.|
|High utilization of credit limit||An increase in the current balance of your credit card indicates an increased repayment obligation.||Always wise and prudent to not use too much credit, control your splurges.|
|Higher percentage of unsecured loans||Having higher personal loans and credit cards.||Maintain a healthy mix of secured loans such as home loan, auto loan and unsecured loans.|
|Multiple new accounts||Being sanctioned multiple loans in recent time signals the lenders an increased debt burden.||Be cautious of credit, not hungry.|
It is imperative to be mindful of your cibil scores and maybe try and improve it before filing for a home loan.