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What Is CIBIL Score and its Importance?

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What Is CIBIL Score and its Importance?

A CIBIL Score is a consumer’s credit score. It is a three-digit numeric summary of a consumer’s credit history. This is based on past credit behaviour, based on borrowing, and repayment history shared by lending institutions with CIBIL on a regular basis.

The CIBIL score is based on various factors such as repayment history and discipline on loan accounts or credit cards, payment status, outstanding amounts, and delayed payments. This number ranges between 300 to 900. The closer a CIBIL Score is to 900, the higher the chances of the consumer’s credit card or loan application getting approved.
The CIBIL score in effect is an indicator of a consumer’s creditworthiness.

The CIBIL Score is generated by a scoring algorithm, which considers a large number of data points and macro-level credit trends. Primarily, some and credit utilisation, depth of credit (that is, the duration of the consumer’s existing credit history from when the consumer’s oldest credit account was opened), long term trend of outstanding balances, transaction history on credit cards, and the ratio of actual repayment amount to the total amount due.

Many lending institutions now offer the facility of checking one’s CIBIL score online and obtaining a CIBIL score report.

To improve one’s CIBIL score, one needs to ensure that one’s repayment behaviour is extremely good. Credit card dues should never be accumulated and should be paid on time. Loan instalments should never be missed. One’s repeated requests to banks and other lenders for loans and credit cards also affect the CIBIL score.

To conclude, the importance of CIBIL score cannot be overemphasised as it is one of the key factors considered by lenders while reviewing a loan application.