Disadvantages Of Having A Bad CIBIL Score

Based on the creditworthiness of an entity - determined from factors such as payment history, credit enquiries, low credit history, multiple unsecured loans, etc. – the Credit Information Bureau of India (CIBIL) assigns a rating, called the CIBIL score. This is a 3-digit number between 300 and 900; closer the score is to 900, higher is the creditworthiness. Ideally, a score above 750 is considered high and provides a lot of advantages. Alternatively, a bad CIBIL score can cause a lot of disadvantages, such as:

1. Creditors including banks do not want to take risks beyond a certain limit and hence, do not prefer lending money or issuing credit cards to individuals or businesses that have a low CIBIL score. Thus, a major disadvantage of a bad CIBIL score is the high rejection probability of loan or credit card applications.A bad score directly reflects on the ability and intention to pay back the credit. Hence, in such cases, banks and financial institutions are very wary while sanctioning loans or issuing credit cards, since that implies higher risk. This is, in turn, is reimbursed from the debtor in the form of higher interest rates.Another critical disadvantage of having a low CIBIL score is the upfront security that one might have to deposit to avail basic utility services such as electricity, phone, etc. This is because a bad score implies a riskier lender. Hence, the companies ask for a security deposit even if you have a good payment history.Insurance companies believe in indirect relation between a bad CIBIL score and claims filed. Lower the CIBIL, higher is the ratio of claims made. Hence, insurance providers always charge higher premium on entities that have a bad CIBIL count to account for their risk.Entrepreneurs with a bad credit score will face loan rejections, which may completely jeopardize the high potential, new business plans.A person with a bad CIBIL score might also face a lot of problems while renting a property since the landlords usually run a creditworthiness check before renting out. In case of an extremely low score, the tenants may be asked for a hefty security deposit to cover for the risks of a bad score.

Overall, one must maintain a good CIBIL score by following simple steps such as - borrowing only when needed, avoiding delayed payments, consistently maintain healthy credit, as well as always monitoring credit score. A good CIBIL count provides several advantages.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.