HYDERABAD: CIBIL score or credit score has become most important factor today in financial and banking sectors to evaluate an individual’s financial health and credit worthiness. In fact, CIBIL score is one of the first checks banks and other lending institutions do while evaluating a person’s loan or credit card application. While the financially literate and salaried professionals have started realising the importance of CIBIL score, many still need to become aware of its importance.
Let’s see what exactly is a CIBIL score and how does it impact us. CIBIL score of a person is generated by TransUnion CIBIL Limited, which is India’s first credit information company. It collects Credit Information Reports from banks and financial institutions regularly every month. These reports contain details of all individuals who have availed loans or use credit cards, with complete information about their payments, defaults, personal details, employment history and other details.
Based on these credit information reports, TransUnion CIBIL generates a person’s credit score, which is again used by banks and lenders for evaluating the person’s creditworthiness.
“Credit score of an individual is a three-digit number summarising one’s creditworthiness. It is calculated on the basis of one’s past record in managing debt repayments. Though credit score plays an important role while applying for credit products like loans and credit cards, many are still unaware of its significance. Paying all the EMIs and dues by the due date without default is one of the major factors that helps maintain a healthy credit score, though there are several other precautions that need to be taken,” says Radhika Binani, chief products officer, Paisabazaar.com.
Credit scores range between 300 and 900, with higher score denoting higher creditworthiness. According to TransUnion CIBIL, more than 90 per cent of the loans are provided to individuals with a credit score of 750 and above. Therefore, one needs to take utmost care and precaution to maintain a healthy credit score, failing which it becomes highly difficult to get a loan or credit card in times of need.
“Maintaining a healthy credit score is essential, as it not just plays a crucial role in approval or rejection of a loan application, but also determines the interest rates and other offers. People with good credit scores get good interest rates and offers. But there are several misconceptions about credit cards among people, which need to be cleared. There is a need for creating awareness about the importance of credit score. Individuals can regularly monitor their credit score very easily today, using several online platforms,” suggests Adhil Shetty, founder and CEO of Bankbazaar.com.
The ignorance about credit score is so stark that many feel they will have higher creditworthiness and probability to avail credit if they do not have any previous loans, which is completely wrong. One will have a good credit score only if one has already availed a loan or credit card and make payments on time. So, it’s time to get updated and become aware of the usefulness and impact of credit score in our lives.
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