Home / Money / Personal Finance /  A simple guide to understanding your CIBIL score
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The past two years saw an increase in small-ticket loans due to various reasons. Job losses, salary cuts, medical emergencies, rent deposits, upskilling courses and similar reasons drove millennials to opt for such loans. A spike was also observed in short-term loans in cities due to crunched economic activities leading to financial distress.

TransUnion CIBIL Ltd and Google reported that more than 60% of all personal loans that originated in Q4 2020 were under 25,000. According to 2020 borrower profiles, 49% of first-time borrowers were under 30 years old, 71% were living in non-metros and 24% were women. This changing trend has fintech companies targeting the younger age bracket as well.

As a borrower, one needs to be mindful of factors that affect credit score. Credit reports are detailed descriptors of your credit history. Hence, a healthy credit score is imperative to maintain. However, what is a CIBIL score? How is it calculated and what are some of the key factors that decide one’s score. Let’s find out.

What is a CIBIL score?

Simply put, a good CIBIL score is the numeric summation of a customer’s credit history, credit rating and report, ranging from 300 to 900. A score above 750 is considered healthy, and a credit score below that is considered alarming. Having a good credit score ensures hassle-free loan processing. It gives an advantage to customers, especially with respect to interest rates. Borrowers with a healthy score can sometimes avail loans at lower interest rates in comparison to others. While lenders examine multiple other parameters before disbursal, credit score plays a fundamental role in the approval process.

How to enter the CIBIL system?

The process to register oneself or their company on CIBIL starts with creating an account on the official website, myCIBIL. After creating an account, it is mandatory to upload documents like identity and address proofs, electricity and telephone bills, etc. Once registered, it is crucial to keep a track of your credit score. Timely payments of loan instalments, opting for deferred payments, regular checks on credit score and punctual credit card payments are some ways to maintain a good credit score.

What are the factors determining your credit score?

Payment history: As mentioned earlier, it is extremely important for borrowers to be punctual with loan and credit card payments to maintain a good credit score. Lenders evaluate payment history before approving your loan application. CIBIL analysis reveals that delinquencies of 30 days can lower the borrower’s score by 100 points, which can potentially damage their score. It is essential to make sure that your payment history does not reflect inconsistency in terms of repaying loans.

Ensuring ‘credit mix’: There needs to be a balance in the borrower’s secured and unsecured loans. While loans like home loans come under secured loans, credit card purchases fall under unsecured loans. If the borrower has procured only one type of loan multiple times, it can negatively affect their credit score. A healthy balance of different types of loans is considered desirable by lenders. It suggests that you can handle different types of loans effectively.

Corrective measures: In case a borrower’s credit score is low, he/she can take corrective measures to get it back on track. For example, instead of just paying the minimum due, it is important to clear all credit bills. This will not only reflect well on the borrower’s credit report but also help them in availing lower interest rates on loans.

Can you avail a loan without being in the CIBIL system?

It is possible to avail credit without having a registered CIBIL score. This is made possible through loans that involve assured assets. Loans against gold, for example, do not require the borrower’s credit score as a prerequisite.

The only deciding factors in the case of an assured gold loan, is the purity of the gold metal and the amount of collateral submitted itself. Loans against property too, fall in a similar category. However, while a credit score is not needed to avail a gold loan, delay in repayments can severely impact a borrower’s credit score.

It must be noted that repayments or instalments must be handled carefully either way. Loan default and irregular payments will further influence your gold loan and bring down your credit score.

Yashwardhan Aeren is co-founder and chief growth officer, Ruptok Fintech Pvt. Ltd.

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