A credit score or CIBIL score is a crucial factor to consider when seeking loans, universally. Ergo, this article pits credit score vs. CIBIL score so that borrowers have a clear understanding of both of these concepts.
What is CIBIL score?
The Credit Information Bureau of India Limited (CIBIL) is one of the 4 prominent credit information companies, alongside Equifax, Experian, and CRIF Highmark. Any credit score assessed by these rating agencies is considered equally valid, but different organisations may prefer one over the other. The Reserve Bank of India (RBI) authorises all of these bureaus.
The credit score provided by CIBIL is known as a CIBIL score and ranges from a minimum CIBIL score of 300 to a maximum CIBIL score of 900, with a higher score being better. The Credit Information Bureau of India Limited determines the CIBIL score by examining the borrower’s credit history and repayment habits.
What is credit score?
A credit score is a crucial numerical value that financial institutions and lenders use to determine the creditworthiness of a borrower. Ideally, this score should be higher than 700 for an immediate loan approval. A favourable credit score plays a significant role in the credit report and positively influences lenders to expedite the loan approval process. Various websites let individuals easily get CIBIL score free of cost.
How to maintain a healthy credit score?
If an individual’s CIBIL score falls below the required threshold, their loan application may encounter delays or even face rejection. Therefore, it is crucial to increase and uphold the CIBIL score by following the subsequent methods:
- Limit credit usage
To maintain a good CIBIL score, consumers should avoid using credit cards excessively. By restricting credit card usage, an individual can positively impact their credit score. Individuals can achieve this by keeping the monthly credit bills low, which will reflect a healthy credit score.
- Repay debts on time
Timely repaying debts, be it a personal or home loan, is crucial in maintaining a good credit score. The punctuality of payments affects the credit score more than any other factor. Therefore, it is best to avoid pending payments and pay the dues on time every month as it can significantly increase one’s credit score.
- Look out for discrepancies
Consumers should check CIBIL report periodically to detect any errors that may arise. While errors are uncommon, borrowers may experience them occasionally. In situations where a person has complied with all guidelines for establishing a strong credit score but still has poor results, it is advisable to investigate any possible inconsistencies.
- Age of credit history
The credit history age refers to the period since the borrower opened their first credit account. A good credit score requires a credit history of at least 7 years. A high credit score is achievable if there are no defaults during this time.
- Pay off past dues
Individuals should avoid hastily registering for a new credit line without first settling any outstanding balances, as this could harm their credit score.
Numerous lending organisations offer pre-approved loans, such as home loans, loans against property, and other types of loans, which simplifies the lending process and saves time. Applicants can conveniently check their pre-approved loan offers by providing necessary details.
With a better understanding of credit score vs. CIBIL score, individuals can make better financial decisions, maintain a good credit history, and increase their chances of loan approval. Ergo, consumers should monitor their respective CIBIL scores routinely and stay up-to-date about these financial concepts to ensure a healthy financial standing.