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What is a Good CIBIL Score to Get a Loan?

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What is a Good CIBIL Score to Get a Loan

Credit score has become a ubiquitous term in modern-day finance terms. If you are looking for funds from the banking industry, having an ideal Credit score has become mandatory. Since 2010, there has been a constant demand from financial institutions to evolve a statistical tool that helps in objectively evaluating the financial health of the prospective borrower. Central banks who are strict guardians of the financial privacy of customers designed an index that depends on various parameters concerning the individual’s financial habits.

CIBIL is a subsidiary of Transunion and is one of the credit agencies approved by the Reserve Bank of India. These scores are essential to generate individual credit scores and that of enterprises. The credit score is a weighted calculation of the various data sent to it by banks and financial institutions.

The various marvels of the modern financial world such as credit cards, instant personal loans and any type of credit needs can be accessed without obstacle with a top-bracket credit score. Similarly, the perils of a suboptimal credit score have to be emphasized. Applications of loans of low credit score borrowers are more prone to getting rejected by trustworthy lenders. This opens up the possibility of the borrower approaching high-interest lenders or maybe even get defrauded by unscrupulous elements such as Call Money.

All types of financial contingencies can be met with adequate responses and nullify the future probability of the financial risks by availing of business loans. 

  • Credit score is an essential tool to avail a business loan with the right quantum and the perfect loan conditions.
  • The operational capabilities of the business can be enhanced to meet global standards and thereby enhancing the stakeholder’s worth.
  • Business finance loans which can be realized by maintaining excellent credit history with the lenders and global banks can help to drive innovative business strategies. T

The use of services of the third-party financial consultant companies can be afforded by taking business loans at the appropriate times in alignment with the competitor strategies.

How maintaining a good credit score helps in Debt consolidation:

To remove the unsavory circumstances of cash flow periodical mismatches and their ultimate and deleterious effect on the credit image of the company and the entrepreneurs, the entire burden of the enterprise can be shifted under a singular financial entity based on pre-determined and mutually agreed-upon parameters.

  • Debt Finance can be a helpful instrument to fight declining credit score levels and helps business owners to consolidate their total debt under a single platform.
  • This helps in the timely service obligations of loan payments thereby improving the health indicators of your financial universe.

Regular auditing of the credit score evaluation mechanisms also helps the third-party auditors to give your enterprise a good certificate of financial health.

How Credit Score affects Profit Planning and Budget Forecasting?

Though Profit Planning is an entirely financial exercise in Business Planning, the top management should take a close focus on maintaining financial integrity in the account books. Credit scores are an excellent option to ensure that the credit history of the company and the individual is clean and there is no risk of financial decline in the business organizations. Any overzealous attempts to inflate the account books and cook the important financial ratios will only result in a debacle; the case in point being the Satyam fiasco which rocked the Indian corporate sector in 2008.

Financial Forecasting

Business Finance controls the efficiency of capital usage by guaranteeing adequate levels of capital to meet the priority needs of the company. The timely payment of debt obligations of the company helps in enhancing the credit history quality and results in an increase in business profitability. New investment programs can be tracked at periodical levels to determine the right estimates of sales output.

Updates of latest changes in Credit Score algorithms

  • The criteria that are applied for borrowers and credit card holders have been revised by the Credit Information Company (CIC). The statistical bearing of the credit score has been decreased from 724 to 701.
  • The singular reason that CIBIL adopted this going mechanism is due to its change in the time period policy. The policy enumerates that customers’ courses should be built on the last three years instead of the status quo of 24 months.
  • Certain changes have been made to the tracking algorithms of credit Information companies so as to broaden the search parameters of a customer’s credit history.
  •  Updating the scoring algorithm will definitely have certain ramifications for people who spread its needs. People now need to be more careful about their financial behavior and put in more months of good loan repayment.

An accurate picture of the credit cycle on the individual can be formed by looking at the credit history. Lending institutions and banks have been authorized to pull the files of the last three years when deciding on giving loans to the customer.

What can be regarded as a good credit score?

Credit score factors

History of Payment

35%

Owed Amounts

30%

Duration of Credit History

15%

Quantum of New Credit

10%

Variants of credit used

10%

Any score which lies in the range of 700 to 900 comes under a good CIBIL score. There are various benefits of maintaining an excellent CIBIL score some of them being:

  •  Swift approval
  • Decreased interest rates
  • Access to multiple credit products
  • Enhanced loan amounts
  •  Favorable loan tenure repayment
  • Getting in the good books of the financial institutions

What can be considered a good CIBIL score when applying for loans?

Loan applicants are searching for good terms and conditions in the categories of home loan, car loan and personal loan. They need to keep in mind that any score above 750 keeps you in the safe zone from the perspective of the financial lenders. There will be more inclined to offer you favorable interest rates, a longer repayment period and a higher quantum of the applied loan amount when they are satisfied that the credit standing of the borrower and the business organization is excellent.

 1. Documentation process in a financial contract can be a tad sophisticated. Many borrowers are intimidated by the sheer volume of the documents that need to be produced to get a loan sanctioned. Having a good credit score can simplify the various documentation processes and you just need to submit initial documents thereby increasing your convenience and saving your time resources.

2. Credit scores are also applied for the sanction of car loans. The financial lenders take every measure to get a focused and comprehensive view of the borrower’s credit and financial history, which in turn helps in objectively evaluate the loan qualification. It is always advised for consumers to maintain score a credit score upwards of 700 to qualify for the latest competitive interest rates.

Let’s take a close look at the diverse components of your financial behavior that can have a deleterious effect on the CIBIL score:

1. Irresponsible payment trends

One of the biggest influences on the credit score is the way in which individuals conduct their payments. All credit card bills and periodical equated monthly installments should be paid before the due date every month. The internal algorithm analysis in CIBIL as reported by The Economic Times indicates that any time period greater than 30 days can result in a decrease of hundred points from your overall credit score. Making late payments will have a long-ranging effect on your overall credit score.

Maintaining good credit history depends on the ability to provide for each monthly installment. It is advised for individuals to set up alarms, alerts and reminders to ensure that they do not miss on recurring payments and ensure that there are no delayed payments.

2. Increase in the credit utilization

One of the important rules is to keep a check on your credit utilization ratio. It is defined as the total quantum of credit that has been utilized by you in relation to the overall credit limit sanctioned.

Experts indicate that individuals should not indulge in excessive credit behavior. A general benchmark is that to ensure a good credit utilization ratio in the eyes of the banks, the credit purchases should not exceed more than 35% off your entire credit limit. This means if a credit limit of Rs 100000 has been sanctioned to you, then it is in your best interest to maintain a good credit score to limit your purchase to Rs 35000.

Credit exposure in these turbulent times can increase the number of red flags in financial history with regard to your ability to repay your loan obligations.

Higher credit exposure indicates a higher probability of default and this can put off financial lenders to take a calculated risk on your business.

 3. Outstanding debt

 As discussed above, debt consolidation is a good way to ensure an excellent credit score. Outstanding dues on the credit card should be immediately paid off without out as unpaid dues are given a shoes red mark on your final credit report. Good repayment behavior includes those actions which clear the outstanding on an immediate basis.

 4. Payment of the minimum amount due

Credit card companies offer individuals to make small financial payments in view of servicing the credit Loan. This can lead to a debt trap for the individuals and increase the profits of the credit card company. Paying the minimum amount due every month is an attractive option but in the long-term, the financial health of the borrower takes a severe beating as interest is compounded monthly on the total amount. Getting in the habit of debt rolling is a dangerous proposition, as it increases the overall financial burden of the individual and precludes the opportunities of getting a higher quantum of loans at attractive interest rates from trustworthy vendors.

 5. Making a number of credit applications

Any application for a credit card or a personal loan will lead to a hard inquiry on your credit file by the financial lenders. This is done in order to check the quotient of creditworthiness and decrease the probability of default.

The credit reports are the valuable repository of information that is maintained by some of the most technologically secure credit reporting agencies. Application for inquiry on your credit history is regarded as a hard inquiry.

Sending out multiple applications will only result in the number of hard inquiries made on your credit card report and this will result in a decrease in your credit score. All hard pulls also known as hard queries are reported to a central reporting mechanism.

There are many lenders who out rightly reject credit card applications because they are made on flimsy and ineligible grounds. It is advised for the borrowers not to jealously pursue the sanction of a credit card when previous credit card applications are rejected. It is always advisable to maintain financial prudence and discipline when trying to access different credit cards.

6. Incidence of mistakes and technical errors in the credit reports

Detailed financial records are stored in the individual’s credit report. It would be in the best interests of the business and the entrepreneurs to make sure that all records of previous credit accounts remain error-free in the central repository.

Betting on only one type of loan will remove resilience from your credit history. When the borrower is paying without any delays on all secured and secured loans then the financial lenders will form a positive opinion regarding the payment capacity.

 7. Duration of credit history

In simple terms, the number of years in the credit history displays good financial standing. A lengthy credit history indicates stable finances and a lack of any risk factors. A credit card is an essential tool for maintaining and building a proper credit history for individuals. In modern times, where we are living in a digital age, there are even reports coming out from China that the government is assigning citizenship ranks to all those individuals who are maintaining good credit history by making timely repayments and helping build the economy.

What is a Good CIBIL Score to Get a Loan FAQs:

1. Should I close old unused and inactive credit card accounts? Does it influence my credit score?

Credit history is built on the basis of usage of credit cards. At the same time, individuals should be careful to keep their old and unused credit counts in an active state as it has a positive bearing on the total credit history. If individuals have not used their previous credit cards for a substantial amount of time then it is always recommended to keep open the old accounts and close the new accounts.

2. Should young people take on more debt to increase their credit score?

It is always advisable for young people to take on credit at an early stage of their careers. As the life progress, the requirement for homes and cars will increase and by that time your credit history will make sure that you get attractive loan amounts and tenure options for your loans.

3. Should I avail unsecured personal loans to build credit score?

Providing for collateral is a common practice when applying for home loans and secured business loans. However unsecured loans are also a part of the credit mix. Individuals should show interest and avail at least once in the lifetime, the instant personal loans which show diversity in their credit requirements.

4. What should I do when I observe errors in my credit report?

The onus lies on the individual to bring those errors to the attention of the financial lenders. As a matter of policy, without any official complaints made from the individuals, CIBIL does not undertake rectifications. Another important point of maintaining error free CIBIL report is that you are minimising the chances of Identity theft.

5. Can I make multiple credit card applications and does it affect my credit score?

Making multiple credit applications informs the lenders regarding the credit psyche and buying history of the individual. It sends out a signal of desperation when multiple credit applications are made and has a negative effect on the financial image of the borrower.

6. How do late payments affect my credit score?

Overdue payments have a negative bearing on your credit score and indicate a picture of poor financial health to the banks and commercial lenders. It is always advised to eliminate late payments from your monthly schedule and ensure that proper financial discipline is maintained by the borrowers.

7. Will I sustain any financial charges to check my credit score online?

Reputed credit score agencies such as Experian and Trans union offer a limited number of free credit score check-ups by logging into the online accounts pertaining to the credit score.

8. Are there any fixed intervals during which my credit score is updated?

There is no predetermined time. The updating of the credit score depends on the evaluations policies of economics and banking by leading financial institutions. Make sure not to miss any payments during the updating period of the credit card dues.

9. What are the total numbers of credit bureaus that collect payment information?

Indian consumers are serviced by four major credit bureau namely Experian, Equifax, CIBIL and Highmark. The methods of evaluation in each credit company are the same.

10. Can credit scores be checked through e-mail?

Credit reports can be checked periodically with email statements by applying for viewing rights from the credit agency. Closely notice and check for the presence of errors in the credit report.


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