CIBIL Score - Meaning, Importance and How to Improve Credit Score

• The Credit Information Bureau (India) Limited generates your CIBIL score based on credit information, including loans and credit cards.
• CIBIL score is a three-digit score ranging from 300 to 900, reflecting your credit standing. The higher the score the better it is.
• A credit report captures repayment records across loan types and credit institutions, including financial organisations like banks and NBFCs.

When you apply for a loan, your CIBIL score is a crucial factor that determines your eligibility, sanction amount, and interest rate. Thus, this score vouches for your creditworthiness to a certain extent. So, what exactly is a CIBIL score and why does it matter?This blog addresses these questions and talks about other relevant things that can help you improve your score and get better loan terms.

The Credit Information Bureau (India) Limited (CIBIL) generates the CIBIL score based on your credit information, including loan and credit card details. It is one of the popular credit scores in India. Financial institutions conduct a CIBIL score check while reviewing your loan application to determine your financial reliability.CIBIL score is a three-digit score ranging from 300 to 900, reflecting your credit standing. The higher the score, the better the financial history. It indicates that you regularly pay your financial obligations, making you a low-risk borrower in the eyes of your lender.

Your credit score reflects how regular/irregular you are at repaying debt obligations. Regular and timely payments contribute to a stronger credit history. On the contrary, delayed payments can negatively impact your score.A CIBIL report, known as the Credit Information Report, compiles your credit history from different sources including collection agencies, financial institutions like banks and NBFCs, credit card companies, etc. It captures your repayment record across loan types and credit institutions. You must note that it does not contain details of your savings account, investments, or fixed deposits.

As briefly mentioned above, whenever you apply for a loan, your financial institution reviews your credit score. If your score is poor, your loan application may be rejected. On the other hand, if you have a strong score, your financial institution may process your application, provided it meets other eligibility parameters.An excellent CIBIL score does not guarantee that your loan will be sanctioned. Loan sanctioning is solely at the discretion of the sanctioning authority.

There are various benefits that you can enjoy with a high credit score. Here are some of them:

• Negotiation Capability: A strong credit standing creates some room for negotiating sanction terms. Financial institutions are likely to offer flexible terms if you have a high credit score. You can enjoy lower interest rates, longer loan tenure, etc.
• Credit Card Offers: If you have a sound credit history, you can expect to receive some lucrative credit offers, including better incentives and more benefits.
• Faster Loan Approval: A loan application with a poor credit score is subject to more scrutiny. Hence, if your score is on the higher side, your loan approval time may be comparatively fast.
• Higher Loan Limits: A loan application with a low credit score is seen as a riskier application, hence the sanctioned limits are typically less. However, an excellent CIBIL score usually translates into higher sanctioned limits.

You can improve your credit score by exercising good financial judgement:

• Make sure to pay your EMIs and credit bills on time.
• Prioritise your spending and ensure it is within the credit limits.
• Pay off your credit card bill in full to strengthen your credit score.

Timely repayments build a stronger credit history. Thus, you can set reminders and auto-payment instructions to ensure you never miss a payment.

A CIBIL score reflects your financial discipline, which builds a strong credit history over time. The stronger the credit history better the chances of your loan approval. Financial institutions give a significant weightage to your credit score while evaluating your loan application.Since your score vouches for your financial standing, make sure to pay your debt obligations, including credit card bills on time. An improved credit score may help you get better credit card benefits.Are you keen to know about some of these benefits?Talk to an Aditya Birla Capital representative and choose from a range of curated co-branded credit cards . Also Read: How to Get an Urgent Loan for CIBIL Defaulters?