Cibil Score & Utilizing

Understanding CIBIL Score & Utilizing It For Lower Loan Interests

by posted in Mixed Bag


Indian population has one of the most diverse credit distributions in the world. We are home to a billion people comprising of lower, middle, upper-middle, upper classes, not the mention some of the richest people in the world. This diversity brings a challenge for financial institutions to estimate the financial credibility of an individual. If you haven’t read our guide on Money Lending Scenario in India, we recommend you to give it a look.

Whenever you apply for a loan from financial institutions like banks and Non-Banking Financial Companies (NBFCs), your eligibility is decided based on your credit score.

What is a credit score?

A credit score is a three-digit numeric value generated by the credit bureaus in India that estimate the creditworthiness of an individual. This score is used by the financial institutions to understand the likelihood of loan applicant to default loan repayment or credit card dues.

In India, there are four credit bureaus operation current which are Transunion CIBIL Limited (CIBIL), Experian, Equifax and CRIF High Mark. Among these four, CIBIL is the oldest credit bureau operating in India since 2000. This is one of the reasons why it is also the most trusted by banks as a credit score benchmark.

An individual’s CIBIL score can range between 300 and 900, the higher the score the better your credit rating. A high CIBIL score gives loan lending institutions a positive outlook towards your credit responsibility and they are most likely to favorably issue you a loan or credit card.

Now, how much CIBIL score is considered good?

A CIBIL score of 750 or above is considered good by the financial institutions. According to CIBIL, of all the loan applications, over 79% of approved loans are for those individuals or businesses that have a CIBIL score of 700 or above.

That being said, just having a good CIBIL score is not a guarantee that your loan or credit card application will be approved, but it definitely helps to start things on a positive foot. The final decision whether to approve your loan or not solely rests with the lenders and CIBIL has less role to play in the procedure.


What factors contribute to your CIBIL score?

CIBIL utilizes a number of factors to determine a person’s credit score. While it is difficult to pinpoint all of these factors, we definitely can elaborate on the most important ones.

1.Payment history-Have you ever been in a situation when your loan or credit card application is rejected not because you don’t have a poor CIBIL score? This can happen when there is no information available about your repayment history or you haven’t ever taken a loan. This brings us to the point, your repayment history has a huge impact on your CIBIL score. Making consistent repayments for loans on time boost the score.

2.Credit limit utilization-This factor is important for those of you who are in possession of a credit card. While these financial instruments are a boon if serviced well, you need to know how credit utilization of your credit cards affects your CIBIL score.

While there is no clear indication from any financial institution or CIBIL as to what is considered as good credit limit utilization, but experts agree that you should spend only 30-50% of the credit card limit. To be on the safe side maintain the maximum credit spend to 40%. This is an indication that you are not entirely dependent on credit cards for your expenses. Also make, credit card repayments on time which will help boost your CIBIL score.

3.Credit history-For how long one has maintained his account also determines the credit score. A long-standing healthy bank or credit card account is always seen as positive by banks.

4.Healthy credit mix-Maintain a balance between secured loans like home loans and gold loans and personal loans. This balance is required to maintain a healthy credit score.

5.New credit-Nowadays, it’s a trend for banks to offer credit cards through cold calling customers and offering them lucrative deals. While it might be tempting to get a new card but keep in mind every time you make a new application, your CIBIL score takes a hit. Increase in the number of credit cards is seen by lenders as an increased debt burden affecting your credit score negatively.

If you take care of these 5 factors, you can easily maintain a healthy CIBIL score that will work in your favor whenever you try to apply for a loan.


Good CIBIL can get you interest rate discounts on loans

Banks and NBFCs reward you for maintaining a high CIBIL score and a good credit history by offering you discounts on interest rates.

For instance, the Bank of Baroda (BoB) became the first bank to offer home loan interest rate discounts to customers based on their CIBIL score. At present, the MCLR of Bank of Baroda is 8.35% (learn more about MCLR here). A borrower who maintains a CIBIL score of 760 or above can avail home loan from BoB at 8.35% which is the lowest in the market. However, the MCLR spread will increase from 0% to 0.5% for a borrower with a credit score between 725 to 759, and he has to pay an interest rate of 8.85%. Any borrower with a score of below 734 will be charged an interest rate of 9.35% on the same home loan which is 1% MCLR spread.

We have a detailed home loan guide that you might want to check out if you are interested in availing such loans.

Check your CIBIL score for free

You do not have to pay to get your credit score as CIBIL provides a free credit score report to all individuals. All you have to do is:

  1. Visit
  2. Create your account
  3. Verify your identity

That’s it, after successful identification your CIBIL credit score will be generated.


Word of caution

There are several mobile apps that are floated around as free CIBIL score providers, which is not necessarily false, but the main objective of most of these apps is to steal your financial data. These apps gain permission to read sensitive information like a loan and financial transaction related SMSes and they sell this information to third-parties. According to Shivangi Nadkarni, CEO of Data Protection Firm, Arrka, “Our study of 100 apps developed in India and meant primarily for Indian audiences revealed that 31% apps take more than 10 dangerous permissions and shared data with at least one third party.”

Be cautious of what apps you install and what permissions are granted to these apps.


To conclude

A good credit score determines, going forward whether you will be able to avail a loan from any bank or NBFC. It also decided under what terms and conditions your loan will be sanctioned, for instance, the interest rate. This is why it is important to keep track of your credit history and practice ways to keep it boosted.