Banks provide prospective customers with loans based on their ability to repay the amount. Financial firms determine a loan applicant’s creditworthiness by looking at a variety of information about his or her financial history and how she or he has dealt with debts in the past. Banks rely on credit bureaus for this information, which is generally referred to as a borrowers’ credit or CIBIL score. Banks depend heavily on credit bureaus for information that helps them assess a borrower’s creditworthiness. This rating is more commonly known in India as a borrowers’ credit or CIBIL score because it is assigned through a score.

CIBIL score: what is it?

Credit bureaus in India award borrowers credit scores on a range of 300 to 900 depending on their banking and payment history. Borrowers with credit scores of 700 and higher can readily obtain house loans from banks. Borrowers with bad credit must pay a higher rate of interest. Even though the word CIBIL Score is sometimes used interchangeably with credit score, it should be noted that CIBIL Report is one of India’s credit bureau firms.

Scores based on the user’s credit history

Credit bureaus assign the following scores based on the user’s credit history:

CIBIL score of 700 or more:- A CIBIL score of 700 or more is deemed to be in the “no-risk” zone for the financial institution. This indicates that the lender will be willing to provide you with a loan at the lowest possible interest rate. It’s worth noting that consumers with a credit score of at least 750 are approved for 79 percent of loans.

CIBIL score between 600 and 700:- Lenders will also be prepared to issue loans to borrowers with a CIBIL score between 600 and 700, which is considered a lower-risk zone. However, you may be required to pay a greater interest rate than people with a better credit score.

CIBIL score of 300-600:- An individual with a CIBIL score of 300-600 is regarded to be in a high-risk category. Banks are hesitant to lend to persons in this situation.

CIBIL score of 1–5:- CIBIL score of 1–5 is given to those who have had credit for less than six months.

-1 credit score: -1 credit score is given to persons who have never had credit. This rating is given to first-time borrowers who have never had a loan or credit.

Major factors determining a credit score

Four major factors are used by credit bureaus to determine credit score ratings. Repayment history, existing loan and credit usage, type of loan and length, and the number of credit inquiries are all factors to consider. While repayment history, existing loans, and credit usage are always given the most weight when calculating a credit score.

The fee to check CIBIL score or credit report

While a borrower can check his or her credit score for free once a year from any credit information provider, credit bureaus may levy a modest fee as per the Reserve Bank of India (RBI) set guidelines. The borrower will always be required to make a payment in order to obtain a credit report and a credit score check.

The borrower will be charged a fee by TransUnion CIBIL if they want more than one free credit score and credit report in a year. Borrowers have to pay Rs 550 for a basic credit report with a credit score to get one report in a year or Rs 800 for a standard credit report to get two reports in a year. Else, Rs. 1,200 for a premium credit report to get four reports in a year

How to get a free credit report

Many financial institutions, particularly fintech start-ups, offer free CIBIL reports as well. These fintech companies and banks, which are mostly third-party entities, link with credit bureaus. Allow them to provide customers with the credit score they come up with and provide them with free CIBIL reports.

They will, however, require several facts from you to offer you a basic credit report. You will be asked to fill out a form for a free credit report, which will require you to provide your personal information, such as your name, date of birth, gender, address, email address, and phone number, as well as professional information, such as your job profile and monthly salary, and your PAN number. They will, however, require several facts from you to offer you a basic credit report. You will be asked to complete a form for a free credit report, which will need you to provide personal information.

To check the credit score follow the following steps:

• Visit the CIBIL website, www.cibil.com, to check your CIBIL score and receive it in the mail.
• Choose from basic, standard, or premium subscriptions.
• To create an account, enter information such as your name, email address, and proof of identification.
• Make a payment based on the type of subscription you have.

Time required to get a CIBIL report?

If you apply online, your CIBIL report and score will be given to your e-mail address within three to five business days. If you apply for a credit report over the phone, CIBIL will take a week to process your request after validating your documentation.

Credit score for a loan

People with a credit score of over 750 are eligible for the best interest rates offered by almost all Indian institutions. This means that if a bank is now offering a 5.80 percent interest rate on a loan, it will only give it to those with a credit score of over 750. Borrowers with lower credit scores will pay a higher interest rate.

Misconceptions that harm the credit score

Here are some prevalent, but incorrect, misconceptions about credit scores and how they affect your ability to borrow money for a loan.

Not applying for credit

Without a credit history, banks will have to conduct a more thorough investigation to determine your creditworthiness and payback capacity. As a result, when they examine your loan application, they will be more cautious. Staying off credit is beneficial, especially if you don’t rely on it for any of your financial demands.

Credit scores get improved quickly

If you have no credit history, you may be tempted to apply for credit cards and modest loans to establish one. This is a bad idea since it will be evident to credit institutions that you are attempting to construct a credit record quickly. Your credit score would suffer as a result of this.

It’s good to over-utilize the credit

The credit utilization ratio rises when a credit card’s credit limit is exceeded (the ratio of your outstanding credit card balance to your credit card limit). It’s preferable if the ratio is as low as possible. Your credit score might suffer if you made a decision that increased your payback commitments.

It’s good to be a guarantor

You may have agreed to be a guarantor on a friend’s or relative’s loan application, but this could harm your credit in two ways: if the friend defaults on his loan, or if you are financially obligated to satisfy the guarantee’s obligations.

My credit report is updated

When you return a loan, the bank that provided the funds will create a credit report for you. Changes in your credit balance over time, rather than quickly, would affect your credit score. The credit bureaus may take up to 60 days to acquire this information, so your credit score may fluctuate over time.

Delay the payment

Credit bureaus provide you with a rating based on your ability to pay back your debts. Late credit card payments and EMI defaults will persuade them that you lack financial management, even if you eventually repay the loan. In reality, ratings are given based on a variety of factors, and if the bureau learns that your source of income has been impacted, your rating will be changed.

Closing old accounts

Some of you may be rushing to close an old account because credit cards are considered unsecured debts. This may have the opposite effect on your credit score. An old credit card account with a solid payback history would be beneficial to your borrowing possibilities.