A CIBIL score is a three-digit number ranging from 300 to 900 that reflects your creditworthiness. Issued by TransUnion CIBIL, one of India’s leading credit bureaus, this score is calculated based on your repayment history, credit utilisation, outstanding balances, and the age of your credit accounts.
When you apply for a home loan, lenders review your credit profile alongside other parameters such as income, age, and property value to determine your loan eligibility. In this article, we explore why having a healthy CIBIL score matters and share effective ways to improve it.
Significance of a CIBIL Score
As mentioned previously, your lender evaluates your credit score to assess your creditworthiness. It helps them determine your repayment capacity and provides insights about your credit management. A higher score indicates a healthy credit profile. Here is how a good CIBIL score, typically above 750, impacts your loan application:
- It increases the likelihood of loan approval
- It increases your chances of securing a more competitive interest rate
- It can help you negotiate with your lender for better terms
How is Your CIBIL Score Calculated?
Your CIBIL score is calculated based on:
- Repayment History: It indicates how consistently you pay your EMIs or credit card bills. Timely payments can help you improve your CIBIL score.
- Credit Utilisation: It refers to the percentage of your available credit that you are currently using. Ideally, keeping your credit usage below 30% of the total limit can contribute positively to your score.
- Credit History: It indicates your debt repayment record. A longer credit history without delays or defaults can improve your score.
- Credit Mix: This is the type of credit you have availed of. A balanced mix of unsecured and secured loans can demonstrate responsible credit management.
- Hard Enquiries: When your lender evaluates your credit score to decide on your loan application, it is recorded as a hard enquiry. Several hard enquiries can lower your score. It is advisable to apply for a loan only when necessary.
How to Perform a CIBIL Check for Loan Applications?
Conducting a CIBIL check before applying for a housing loan is a prudent step. Here is how to do it:
- Visit the official website of CIBIL.
- Sign up or log in to your account if you are an existing member.
- To sign up, enter personal details such as PAN details, name, date of birth, and contact information.
- Next, you need to choose a plan. Free reports are available annually but for frequent access, you may require a subscription.
- Complete OTP verification.
- Access your current CIBIL score and report.
Steps to Improve Your CIBIL Score Before Applying for a Home Loan
If your current CIBIL score is low, consider taking the following steps before applying:
- Ensure that you pay EMI or credit card bills on time
- Avoid applying for too many credit applications simultaneously
- Monitor your credit report to dispute errors
- Do not close or delete old credit accounts
Your CIBIL score is a key metric that influences the interest rate at which you can avail of a housing loan. It is a good idea to perform a CIBIL score check to assess your financial standing before applying for a loan.
