In conversations around loans in general and home loans in particular, the importance of having an excellent CIBIL score is repeatedly highlighted. The CIBIL score is a key metric that lenders use to perceive the risk involved in doing business with a loan applicant. The CIBIL score serves as the loan applicant’s first impression and can make or break their chances of getting a loan.
TransUnion CIBIL, the oldest and the most popular credit information agency in India, assigns CIBIL scores to credit users based on information collected from various financial institutions. The credit information agency takes into account five factors while deciding an individual’s credit score: their repayment history, credit utilization ratio, the age of their credit history, the credit mix they have and the number of hard enquiries under their name. Of these 5 factors, an individual’s repayment history and credit utilization ratio have the most significant impact on a person’s credit score. These two factors make up almost 65% of an individual’s CIBIL score.
An individual’s CIBIL score is a digital summary of their credit report and can range from 300 to 900. 300 is the worst CIBIL score an individual can have and 900 is the best. Individuals with no credit history are often assigned 0 or -1 credit scores by credit information agencies. The ideal CIBIL for home loans in India is anything between 750 and 900.
Let us now look at different CIBIL score ranges and what they mean.
Different CIBIL Score Ranges and What They Say About Your Financial Health
Excellent (750 and 900)
Individuals who borrow when necessary, repay on time and are entirely in control of their debt have an excellent credit score. Such borrowers have excellent financial health and can be trusted with timely debt repayment. Thus, when individuals with good CIBIL score apply for a home loan, they get approved quite quickly. More importantly, lenders are quite willing to sanction loans to such borrowers on terms and conditions that the borrowers are inclined towards. For instance, if a loan applicant with an excellent CIBIL score asks for a loan amount slightly higher than what their lender usually sanctions or what the loan applicant is eligible for, it is quite likely that the lender will show a willingness to entertain this request.
Good (700 to 749)
A good CIBIL score is reflective of good financial health. Borrowers who have a good CIBIL score have their debt situation under control. However, they are not considered ideal borrowers as they have made some small credit-related mistakes in the past, such as missing their loan EMIs or credit card due dates, pushing their credit utilization ratio beyond 30%, etc. Such borrowers get loans easily but not at very favourable loan terms and conditions.
Average (600 to 699)
An average CIBIL score is the sign of a borrower who has made many credit-related mistakes in the past and thus, cannot be entirely trusted with repayment of loan money. Thus, when someone with an average CIBIL score applies for a home loan, lenders usually hesitate to sanction their loan. Such loan applicants are generally asked to either add a co-borrower or a guarantor to their loan application.
Low (Below 599)
A CIBIL score in the range 500 to 599 is considered low and a CIBIL score below 499 is considered very low. CIBIL scores falling in these ranges indicate a credit user who is quite likely to default on loan repayment. Thus, lenders very rarely sanction loans to individuals whose credit score falls within the poor category as such a CIBIL score is indicative of bad financial health.
The next relevant question is: is it possible to improve one’s CIBIL score? If yes, how to improve your CIBIL score? The CIBIL score is not absolute and will change depending on how you access and use credit. Repaying loan EMIs and credit card bills on time, maintaining a low credit utilization ratio and a healthy mix of both secured and unsecured loans will help you improve CIBIL score over time. Similarly, not showing excessive dependency on credit by applying for too many loans together will also go a long way in helping you better your CIBIL score.
In conclusion, the CIBIL score or credit score is an important metric that all lenders track and therefore, every loan applicant should perform a credit score check online and proceed with the home loan application process only if they have an excellent or good CIBIL score.
