The CIBIL score is the rating given to individual on the basis of the performance of the various credit lines used by the customer; a good credit score will enable the applicant to get easily the credit facility applied for. It is important to keep abreast of the credit score, as in time of a financial requirement there are no surprises in store.
The salient features of a CIBIL score are the following;
The Scoring Benchmark
The CIIL score is initiated from 300 points is a high risk category & goes up to 900 to a maximum, while closer to 900 is a low risk category.
A healthy credit score is anything above 725 points, most banks & NBFC’S consider a score above 725 points to be a minimum score to acquire easy credit, anything below may denote a late payment or a default.
A score of 650 points may be accepted for processing of a credit requirement of a loan or credit card if payment delays are not habitual & have happened due to an emergency or unavoidable circumstance.
- 850 – 900 = Excellent
- 750 – 850 = Good Score
- 700 – 750 = Decent Score
- 650 – 700 = Mediocre Score
- Below 650 = Below average
Building your Credit Score
A minimum credit history of 6 months is required to merit a CIBIL score; it could be in the form of a consumer loan, credit card, personal loan, auto loan or home loan.
Consumers with a Credit history of less than 6 months are given a credit rating from1 to 5.Closer to1 being a high risk category & closer to 5 being a low risk category.
Consumers with no credit history & hence no CIBIL record are given are given a score of – 1 on an enquiry to CIBIL, which means the candidate has not yet initiated the use of any credit facility.
It is advisable for an individual to start building a credit score as soon as employed & earning, it could start by applying for a credit card; usually Banks with which the salary account exists are liable to issue a credit card without a credit rating;
The age of the Credit history also contributes towards the CIBIL Score; maintaining a credit card for a number of years with a regular payment recording or successfully completing the repayment of your Loan for the entire tenure will give a boost to your Credit score.
Steps to a good credit score
It is important to keep a watch on the credit score .Once a credit is taken it is important to keep a follow up & make sure that payments due are done on time, a casual or a careless attitude can prove dear. Using credit lines frequently, making payments on time & using a mix of Secure & unsecure credit are ways to boost your credit score.
Manoeuvres that impact a Credit Score
✔ Always honour the payment due date of your credit facility.
Keep a strict check on the due date for the payment of your credit card dues or the EMI for your loan. Make it a routine check to make sure that there are enough funds in your salary account to clear the EMI on the scheduled date. If there is a lapse for some reason then make the payment as soon as possible.
A late payment within the 30 days bucket may not impact the credit score once in a while, but if payment is delayed regularly then it shows a habitual delay & the score will be affected.
✔ Use Credit Lines frequently.
It is the usage of credit which builds a credit score. Banks are apprehensive to lend to applicants whose credit score is -1.The Loan amounts forwarded may also be conservative leading to un fulfilment of the required finance amount. No Lender will be keen to lend large amounts to an applicant without a proven track record.
Usage of a Credit card or Personal Loan payments with monthly transactions being reported to CIBIL will keep the account active & enhance the Credit Score.
✔ Do not apply indiscriminately for Credit.
Applying for a Credit card or loan should be done after a survey of all the market offerings; and identifying the right Lender which will best fulfils the financial requirements. Sometimes in an emergency for funds, an applicant could forward the loan application to a number of Lenders in a bid to acquire funds quickly or to make a choice for the terms & conditions offered.
This could create a negative impact on the CIBIL score of the applicant as every time a financial institution makes an enquiry to CIBIL to obtain a credit score, the CIBIL SCORE of the individual is reduced. A perfectly reasonable Credit Score of 750 basis points can come down as 10% of the credit score is dedicated to CIBIL inquiries.
✔ Maintain a healthy mix of Secure & Unsecure Credit.
Taking an Auto loan for purchase of a car or motorbike or a home loan to purchase a new property are secure loans which help build a Credit score but simultaneously using a Credit card or a Personal Loan which are unsecure credit tools will boost your credit score tremendously.