5 Benefits of Good CIBIL Score
Although many of us must have heard the term “CIBIL Score” still, we are unsure what it means and what role it can play in our everyday lives.
Here in this thread, we will discuss everything about the CIBIL score, most importantly you will learn the benefits of good CIBIL Score.
What is a CIBIL Score?
A CIBIL score is a three-digit number that has a range between 300-900. The CIBIL score is used to measure an individual’s ability to repay an amount that they have borrowed from the banks or any other financial institution. A CIBIL score is considered an essential factor that lenders consider when they offer a loan or credit. In simple terms, it is nothing but a numerical summary of your past credit history and your behaviour in connection with your’ Repayments.”
Different lenders such as banks and non-banking finance companies (NBFCs) keep track of your credit score and credit report before sanctioning any credit card, loan, etc. It is a score through which the lenders determine the individual’s creditworthiness and ability to repay the loan on time.
CIBIL Score Components: How is CIBIL Score Calculated?
A CIBIL score consists of three main factors, which cumulatively decide the CIBIL score: a good one or a bad one.
A: Payment History: The weightage given to this factor is 30%
B: Credit Exposure: The weightage given to this factor is 25%
C: Credit Type & Duration: The weightage given to this factor is 25%
D: Other Factors: The weightage given to this factor is 20%
Also, there are a few factors that do not affect a CIBIL score at all. These factors are – Income, debit card, overdraft, saving account, education, cheque bouncing, Income, fixed deposit.
What is a Good CIBIL Score?
Many individuals out there, especially the ones who want a loan and the ones who have to give a loan, do have many questions in mind, of which they look for answers time and again, such as – What is a good CIBIL score or what is a bad CIBIL score?
Talking about a good CIBIL score, anything that ranges between 700 and 900 is a good CIBIL score; so to answer your question is 740 a good CIBIL Score? Yes it is.
There are many benefits of a Good CIBIL Score such as a low rate of interest, higher amount of loan, more extended period for repayment, quick loan approvals, and also the willingness of the multiple lenders to approve your loan, which gives the ball in your court as you have the option to choose the lender you want to borrow money from.
What is a Bad CIBIL Score?
In the range of 300-900 for a CIBIL Score, if your CIBIL score is between 300-500, then it is considered a bad CIBIL score, and if the score is between 550 – 650, then it is considered to be an average CIBIL score.
If you fall under this category, then you would surely need to take severe corrective measures to improve your CIBIL score at the earliest. Having a bad credit score will put you under many restrictions, one of the major ones being you not being eligible to get a loan or a credit card.
Advantages of Good CIBIL Score
A good CIBIL score will always put you off the tough spots. A good CIBIL score speaks volumes about your credibility and the kind of citizen you are to the country. As stated above, there are various benefits of a good CIBIL score, the major one being getting a loan quickly. A good score guarantees the higher chance of getting an application for a loan approved. Regardless of the loan type, which could be a personal loan, car loan, house loan, education loan, all you need is a CIBIL score above 700, and you are sorted.
When you have a good CIBIL score which ranges between 700 and 900, you can get many added advantages, such as:
1. Low Rate of Return
A CIBIL score speaks volume of your past payment habits, and also is a factor which helps in building trust with the borrower. Hence in case of a good CIBIL score, you will end up getting a loan at a lower rate of return, and you will be able to save a considerable chunk of money on interest.
But naturally, the lenders in the country give out loans based on the applicant’s risk profile. Those with a higher credit risk end up getting more credibility. Several banks such as UCO, Bank of Baroda, SBI, Syndicate Bank, etc., are the ones that have been allowing lower interest rates for different types of loans.
For Example: Let us take the example of the Bank of Baroda; it has the following rules in terms of rate of interest:
- For individuals with a credit score above 760, the rate of return will be 8.15%.
- For individuals with a credit score between 725 – 760, the return rate increases and comes out to be 8.4%.
- For individuals with a credit score below 725, the interest rate increases to 9.25%.
This is one of the most important benefits of a good CIBIL score
2. Higher Loan Amount
A good CIBIL score increases your credibility and gives the lender an assurance that you will pay any sum of money in your budget in the stipulated time frame without being continuously reminded warned. Hence, you will be able to borrow a higher sum of the loan amount. Having a higher CIBIL score, you would end up getting a higher amount of loan approved. This means that you can fulfil your dream of buying a bigger house or car with a higher loan.
For example: If you have a CIBIL score of 750 and above and have maintained this score throughout, you can quickly expect a ‘2X’ amount. On the other hand, if you have a CIBIL score less than 720, it will be tough for you to get a loan amount of 2X, and you might get a loan for an ‘X’ amount.
3. Longer Repayment Period
One of the most significant advantages of a high CIBIL score is that the cushion you will get in terms of the extra time to repay the loan. If the lender feels particular about your ethics and experience, he or she might give you a levy in paying the loan amount after a few months. You will always be on a better platform if you have a higher CIBIL score.
For example, if you have a CIBIL score of 760 and above, you might get ten years to repay your loan for an ‘X’ amount. On the other hand, if you have a CIBIL score of 650 and below, you might get 5-6 years to repay the ‘X’ amount. When you compare, there is a vast difference in the time duration.
4. Easier to Get Higher Limits on the Credit Cards
If you have a good CIBIL score, then you can get higher limits on the credit cards, and this does open numerous opportunities. It does give a higher power of spending and acts as a buffer in terms of an emergency. The best part about having a higher limit on credit cards, then it helps during a lower credit utilization ratio, i.e., The total amount spent on the credit card/ Total credit limit.
5. Better Negotiations with the Lender
As a basic fact, lenders lookout to lend to responsible individuals and have a had a decent past. Hence, if you come under the category of a ‘Responsible Customer’ who has always abided by the laws and paid back loans and bills on time, then you have a considerable advantage. Naturally, your CIBIL score will be high, which means that you will be in a better position to negotiate with the lenders. This will surely give you an edge over the customers and a better bargain power. You could end up with a lower interest rate as well as low processing fees.
Hence, if you are an aspiring loan applicant, you must access your credit report and check your CIBIL score. If your score falls in the category of an acceptable range, should you think of applying for a loan. In case of a bad CIBIL score, take corrective measures and spend considerable time in converting the bad score into a good CIBIL score.