Tips for Getting a Loan – What’s the Best CIBIL Score?

Credit score has become a ubiquitous term in modern-day finance terms. If you are looking for funds from the banking industry, having an ideal Credit score has become mandatory. Since 2010, there has been a constant demand from financial institutions to evolve a statistical tool that helps in objectively evaluating the financial health of the prospective borrower. Central banks who are strict guardians of the financial privacy of customers designed an index that depends on various parameters concerning the individual’s financial habits.

CIBIL is a subsidiary of Transunion and is one of the credit agencies approved by the Reserve Bank of India. These scores are essential to generate individual credit scores and that of enterprises. The credit score is a weighted calculation of the various data sent to it by banks and financial institutions.

The various marvels of the modern financial world such as credit cards, instant personal loans and any type of credit needs can be accessed without obstacle with a top-bracket credit score. Similarly, the perils of a suboptimal credit score have to be emphasized. Applications of loans of low credit score borrowers are more prone to getting rejected by trustworthy lenders. This opens up the possibility of the borrower approaching high-interest lenders or maybe even get defrauded by unscrupulous elements such as Call Money.

All types of financial contingencies can be met with adequate responses and nullify the future probability of the financial risks by availing of business loans. 

• Credit score is an essential tool to avail a business loan with the right quantum and the perfect loan conditions.
• The operational capabilities of the business can be enhanced to meet global standards and thereby enhancing the stakeholder’s worth.
• Business finance loans which can be realized by maintaining excellent credit history with the lenders and global banks can help to drive innovative business strategies. T

The use of services of the third-party financial consultant companies can be afforded by taking business loans at the appropriate times in alignment with the competitor strategies.

What is the Range of the CIBIL Score?

The CIBIL score range is an essential indicator of your creditworthiness in India. It guides lenders in their decisions to approve or deny credit. Here’s a detailed breakdown of the credit scores: 

• Below 600: This indicates poor credit behaviour. A score in this range suggests you may have a history of late payments, defaults, or high credit utilisation. Approval for loans is unlikely without significant improvements in your credit habits.

• 600-649: This range is considered doubtful. While it is slightly better than the lowest range, securing loans remains difficult. Lenders may impose higher interest rates to offset the perceived risk. 

• 650-699: Falling within this range is an improvement, reflecting fair creditworthiness. You might get approved for loans, but lenders may still consider you a moderate risk. 

• 700-749: Scores in this range represent good creditworthiness. Lenders are more likely to approve loans with favourable terms, such as lower interest rates and higher credit limits. 

• 750-900: This is the ideal CIBIL score range and reflects an excellent credit profile. A high CIBIL score like this significantly enhances your chances of quick loan approval with the best terms, such as competitive interest rates and flexible repayment options. 

What is a Good Credit Score?

Aiming for a score in the 750-900 bracket is essential for maintaining strong Indian credit health. Your Experian score range follows similar criteria and is another important metric to keep in check. 

Why is Credit Score Important?

A credit score in India reflects your creditworthiness and financial discipline. Lenders consider it crucial to assess the risk of lending you money. This is particularly vital for unsecured loans where the collateral is not involved. A high credit score can significantly increase your chances of approval for loans and credit cards while lowering interest rates. Moreover, the ideal CIBIL score is an essential factor for businesses seeking credit, as it enhances their reputation and attracts investors.

How maintaining a good credit score helps in Debt consolidation:

To remove the unsavory circumstances of cash flow periodical mismatches and their ultimate and deleterious effect on the credit image of the company and the entrepreneurs, the entire burden of the enterprise can be shifted under a singular financial entity based on pre-determined and mutually agreed-upon parameters.

• Debt Finance can be a helpful instrument to fight declining credit score levels and helps business owners to consolidate their total debt under a single platform.
• This helps in the timely service obligations of loan payments thereby improving the health indicators of your financial universe.

Regular auditing of the credit score evaluation mechanisms also helps the third-party auditors to give your enterprise a good certificate of financial health.

How Credit Score affects Profit Planning and Budget Forecasting?

Though Profit Planning is an entirely financial exercise in Business Planning, the top management should take a close focus on maintaining financial integrity in the account books. Credit scores are an excellent option to ensure that the credit history of the company and the individual is clean and there is no risk of financial decline in the business organizations. Any overzealous attempts to inflate the account books and cook the important financial ratios will only result in a debacle; the case in point being the Satyam fiasco which rocked the Indian corporate sector in 2008.

Financial Forecasting

Business Finance controls the efficiency of capital usage by guaranteeing adequate levels of capital to meet the priority needs of the company. The timely payment of debt obligations of the company helps in enhancing the credit history quality and results in an increase in business profitability. New investment programs can be tracked at periodical levels to determine the right estimates of sales output.

Updates of latest changes in Credit Score algorithms

• The criteria that are applied for borrowers and credit card holders have been revised by the Credit Information Company (CIC). The statistical bearing of the credit score has been decreased from 724 to 701.
• The singular reason that CIBIL adopted this going mechanism is due to its change in the time period policy. The policy enumerates that customers’ courses should be built on the last three years instead of the status quo of 24 months.
• Certain changes have been made to the tracking algorithms of credit Information companies so as to broaden the search parameters of a customer’s credit history.
•  Updating the scoring algorithm will definitely have certain ramifications for people who spread its needs. People now need to be more careful about their financial behavior and put in more months of good loan repayment.

An accurate picture of the credit cycle on the individual can be formed by looking at the credit history. Lending institutions and banks have been authorized to pull the files of the last three years when deciding on giving loans to the customer.

What is Good CIBIL Score?

Credit score factors

Any score which lies in the range of 700 to 900 comes under a good CIBIL score. There are various benefits of maintaining an excellent CIBIL score some of them being:

•  Swift approval
• Decreased interest rates
• Access to multiple credit products
• Enhanced loan amounts
•  Favorable loan tenure repayment
• Getting in the good books of the financial institutions

What can be considered a good CIBIL score when applying for loans?

Loan applicants are searching for good terms and conditions in the categories of home loan, car loan and personal loan. They need to keep in mind that any score above 750 keeps you in the safe zone from the perspective of the financial lenders. There will be more inclined to offer you favorable interest rates, a longer repayment period and a higher quantum of the applied loan amount when they are satisfied that the credit standing of the borrower and the business organization is excellent.

 1. Documentation process in a financial contract can be a tad sophisticated. Many borrowers are intimidated by the sheer volume of the documents that need to be produced to get a loan sanctioned. Having a good credit score can simplify the various documentation processes and you just need to submit initial documents thereby increasing your convenience and saving your time resources.

2. Credit scores are also applied for the sanction of car loans. The financial lenders take every measure to get a focused and comprehensive view of the borrower’s credit and financial history, which in turn helps in objectively evaluate the loan qualification. It is always advised for consumers to maintain score a credit score upwards of 700 to qualify for the latest competitive interest rates.

Let’s take a close look at the diverse components of your financial behavior that can have a deleterious effect on the CIBIL score:

1. Irresponsible payment trends

One of the biggest influences on the credit score is the way in which individuals conduct their payments. All credit card bills and periodical equated monthly installments should be paid before the due date every month. The internal algorithm analysis in CIBIL as reported by The Economic Times indicates that any time period greater than 30 days can result in a decrease of hundred points from your overall credit score. Making late payments will have a long-ranging effect on your overall credit score.

Maintaining good credit history depends on the ability to provide for each monthly installment. It is advised for individuals to set up alarms, alerts and reminders to ensure that they do not miss on recurring payments and ensure that there are no delayed payments.

2. Increase in the credit utilization

One of the important rules is to keep a check on your credit utilization ratio. It is defined as the total quantum of credit that has been utilized by you in relation to the overall credit limit sanctioned.

Experts indicate that individuals should not indulge in excessive credit behavior. A general benchmark is that to ensure a good credit utilization ratio in the eyes of the banks, the credit purchases should not exceed more than 35% off your entire credit limit. This means if a credit limit of Rs 100000 has been sanctioned to you, then it is in your best interest to maintain a good credit score to limit your purchase to Rs 35000.

Credit exposure in these turbulent times can increase the number of red flags in financial history with regard to your ability to repay your loan obligations.

Higher credit exposure indicates a higher probability of default and this can put off financial lenders to take a calculated risk on your business.

 3. Outstanding debt

 As discussed above, debt consolidation is a good way to ensure an excellent credit score. Outstanding dues on the credit card should be immediately paid off without out as unpaid dues are given a shoes red mark on your final credit report. Good repayment behavior includes those actions which clear the outstanding on an immediate basis.

 4. Payment of the minimum amount due

Credit card companies offer individuals to make small financial payments in view of servicing the credit Loan. This can lead to a debt trap for the individuals and increase the profits of the credit card company. Paying the minimum amount due every month is an attractive option but in the long-term, the financial health of the borrower takes a severe beating as interest is compounded monthly on the total amount. Getting in the habit of debt rolling is a dangerous proposition, as it increases the overall financial burden of the individual and precludes the opportunities of getting a higher quantum of loans at attractive interest rates from trustworthy vendors.

 5. Making a number of credit applications

Any application for a credit card or a personal loan will lead to a hard inquiry on your credit file by the financial lenders. This is done in order to check the quotient of creditworthiness and decrease the probability of default.

The credit reports are the valuable repository of information that is maintained by some of the most technologically secure credit reporting agencies. Application for inquiry on your credit history is regarded as a hard inquiry.

Sending out multiple applications will only result in the number of hard inquiries made on your credit card report and this will result in a decrease in your credit score. All hard pulls also known as hard queries are reported to a central reporting mechanism.

There are many lenders who out rightly reject credit card applications because they are made on flimsy and ineligible grounds. It is advised for the borrowers not to jealously pursue the sanction of a credit card when previous credit card applications are rejected. It is always advisable to maintain financial prudence and discipline when trying to access different credit cards.

6. Incidence of mistakes and technical errors in the credit reports

Detailed financial records are stored in the individual’s credit report. It would be in the best interests of the business and the entrepreneurs to make sure that all records of previous credit accounts remain error-free in the central repository.

Betting on only one type of loan will remove resilience from your credit history. When the borrower is paying without any delays on all secured and secured loans then the financial lenders will form a positive opinion regarding the payment capacity.

 7. Duration of credit history

In simple terms, the number of years in the credit history displays good financial standing. A lengthy credit history indicates stable finances and a lack of any risk factors. A credit card is an essential tool for maintaining and building a proper credit history for individuals. In modern times, where we are living in a digital age, there are even reports coming out from China that the government is assigning citizenship ranks to all those individuals who are maintaining good credit history by making timely repayments and helping build the economy.

How to Maintain a Good CIBIL Score?

Maintaining a high credit score is essential for accessing financial opportunities and favourable loan terms. Here are some detailed and actionable steps to ensure your CIBIL score range remains within the ideal CIBIL score bracket:

• Timely Payments: Always pay your credit card bills, EMIs, and utility bills on or before the due date. Timely payments demonstrate financial discipline and positively impact your credit score in India. Missing deadlines can lower your score significantly and affect your reputation as a borrower. 

• Avoid Settling Loans: Setting a loan account instead of fully repaying it can harm your good score. A settled status implies you did not fulfil your obligations completely, which affects your credibility. Ensure loans are closed with a “closed” status rather than “settled” for the best impact on your credit score.

• Limit Credit Applications: Avoid making multiple credit applications within a short period. Each application leads to a hard inquiry, which can lower your score. Frequent applications may signal financial instability to lenders. Focus on applying only when necessary and ensure your financial health is in good standing before doing so. 

• Maintain Older Accounts: Do not close old credit accounts, even if they are not in use. The age of your credit history plays a vital role in your credit score. Older accounts reflect long-term reliability. Instead, make small purchases on older credit cards to keep them active, ensuring you maintain a strong credit age. 

• Monitor Credit Utilisation: Keep your credit utilisation ratio below 30% of your total credit limit. Using a high percentage of your available credit can portray you as a credit-hungry individual. Maintaining a low utilisation rate boosts your score by showcasing responsible spending habits. 

• Increase Your Credit Limit: Request a credit limit increase if you have a good payment track record. A higher credit limit lowers your utilisation ratio, provided you maintain the same spending habits. 

• Diversify Your Credit Mix: Aim for a mix of secured loans (like a home loan) and unsecured loans (like personal loans or credit cards). This demonstrates your ability to handle different types of credit responsibly. A diversified credit mix improves your overall profile and helps maintain a high score. 

• Avoid Over-Reliance on Credit: Relying excessively on credit cards or taking multiple loans can lead to financial strain and lower your CIBIL score. Plan your expenses wisely and use credit only when necessary. 

• Check Your Credit Report Regularly: Errors in your credit report can adversely impact your score. Monitor your report periodically through credit bureaus like CIBIL or Experian to identify discrepancies and raise disputes if needed. 

Conclusion

Maintaining the best credit score for loan approvals requires disciplined financial habits and regular monitoring of your credit health. In India, an ideal CIBIL score above 750 is pivotal for accessing loans on favourable terms. 

Lendingkart offers tools and insights to help businesses and individuals get tailored loans to unlock better business opportunities. 

What is a Good CIBIL Score to Get a Loan FAQs:

Learn More:
Working Capital Loan EMI Calculator
Loan for Chartered Accountants
Accounts Receivable Financing
Best Free Accounting Software for Small Business
Difference between tin tan vat pan dsc and din
epf balance
form 15g
how to withdraw pf amount online using ua
Fssai License
Business Ideas for Women
10 Business Ideas after Lock Down
Business Skills are Needed to Run Business
Business loan for women
Agriculture business plan
Dairy farm loan
Mudra Loan
Small Scale Industries in India
GST Registration Online
Aadhar Card Status
PAN Card Correction & Update
Aadhaar Card Download
PAN Card Apply Online
Instant PAN Card through Aadhaar
PAN Card Mistakes – To Avoid
How to Link Aadhaar with PAN Card
PAN Card Details Search By Name, DoB, PAN Number & Address
What is a Cancelled Cheque