A CIBIL Score is an indicator of an individual’s credit worthiness. It impacts the individual’s ability to borrow and take fresh credit from lenders.
A CIBIL Score is a score or rating given to individuals as an indicator of the individual’s credit behavior. This is pretty similar to the marks we get for Maths, English, Science etc., from schools. However unlike school marks which tend to have a 0 to 100 range, the range for credit scores varies from bureau to bureau. The CIBIL score range is 300 (lowest) to 900 (highest).
In India, 3 credit rating bureaus or agencies compute your score. These are CIBIL, Equifax and Experian. Each of these rating agencies have various ranges for their credit scores. The most popular credit score in India is the one issued by CIBIL (Credit Information Bureau India Limited).
The CIBIL score range is 300 to 900 (low to high). A credit score of 750+ is considered good and is in most cases seen as loan worthy. Any score below 750 is an indicator of a possible underlying issue in the individual’s credit worthiness.
Credit Scores are a relatively new concept in India but have been widely used in most other markets. In the long run, it helps lenders nurture and incentivise good credit behavior from consumers. Besides weeding out bad credit from the system, it also helps individuals with an excellent credit track record get access to a wider range of offers and products and possibly.
How do lenders use the Credit Score?
An individual’s Credit Score provides a lending institution (banks / NBFCs) an indication of the “probability of default” by the individual. What this means is that the Score tells a lender / credit institution (typically banks or NBFCs) how likely you are to pay back a loan based on your past pattern of credit usage and loan repayment behaviour.
The bureaus compute your credit score based on data shared by lenders – banks, NBFCs and others with them. The CIBIL score is the most popular Credit Score used extensively by lenders to make their credit decision.
How does a good Credit Score help you?
Consumers should know where their Credit Score stands before they apply for a loan or any fresh credit so they can build their Score and better their chances for approval.
Improving your Score helps you get loans at much better rates from lenders. A good Score also helps you get access to offers from multiple lenders – giving you better choice.
If you don‘t have a good Credit Score yet, consider taking time to build your Credit Score before applying for any new credit accounts. There are many institutions in India which provide credit analysis and credit improvement services – CreditMantri is one of them.
In case you would like to know more about Credit Scores and need advice on how to improve your Score, do visit the Knowledge Base.