A good CIBIL score usually has a history of timely payments, responsible credit utilisation, a diverse credit mix, and limited inquiries, with no defaults.
A good CIBIL score, or credit score, is indispensable to procure loans and credit cards at favourable terms. CIBIL is one of the key credit bureaus in India which assesses creditworthiness based on a slew of factors which include payment history, credit utilisation ratio, credit mix, length of credit history and credit inquiries, among others.
For instance, if Mr Ajay pays his bills on time, never crosses 30 percent of his credit card limit, uses a diverse set of credit types, never defaulted on any bill, and has a long credit history – then the chances of a high credit score are exceptionally high.
Conversely, if Mr Tommy often misses on his payments, used 80 percent of his credit card limit, defaulted a number of times on his loan EMIs, then the chances of his low credit score would be high.
These are some of the indicators of a good CIBIL score:
Score range: CIBIL scores usually range from 300 to 900. A score higher than 750 is generally seen to be good.
Payment history: This is the most important factor. Timely payment of credit card bills and loan EMIs shows responsible financial behaviour and impacts the score in a positive way.
Credit utilisation ratio: It’s the ratio of credit used to the total credit available. Keeping this ratio below 30 percent is advisable since it shows responsible credit usage.
Credit mix: A healthy mix of credit types such as credit cards, personal loans, home loans can positively impact the score. It shows the ability to manage different types of credit responsibly.
Credit history: Longer credit histories usually show stability and responsible credit management. However, this is not as significant for those who have recently started using credit.
Number of hard inquiries: A lesser number of hard inquiries can positively impact the score.
Default: No instances of defaulting implies a good credit score provided other factors are positive too.
Credit limits: Higher credit limits and larger loan amounts with responsible repayment can impact the CIBIL score positively, as they show trust from banks.
Frequently Asked Questions:
Why should you check your credit report?
Monitoring your credit score regularly helps you stay informed about your financial standing and any changes that may impact your ability to borrow money or access financial products.
How often should you check your credit score?
Most experts recommend to check the credit score at least once a year.
Can there be mistakes in credit reports?
It is not uncommon to spot mistakes on credit reports. So, regularly checking your credit score allows you to spot any errors, such as inaccuracies in personal information or incorrect reporting of accounts or payments.
Is it an individual decision to check your CIBIL score?
Yes, how frequently you check your credit score depends primarily on your individual financial situation and requirement.
When should you check the CIBIL score more often?
Before applying for a loan, mortgage, or credit card, it’s vital to know your credit score. Lenders use your credit score to determine your creditworthiness and the terms of the credit they offer you.
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