Generally, a CIBIL score above 750 is considered good where the chances of loan approval become higher.
The CIBIL report allows banks to view a person’s credit history, including whether the person has been punctual in repaying their previous debt
A large number of people in the country have taken out or are considering taking out loans, credit cards or other lines of credit from banks or other financial institutions. When approving loans or credit cards to a borrower, financial institutions look at the person’s CIBIL score. Here is what the CIBIL score is and why it is important:
What is the CIBIL score?
The CIBIL score is a three-digit number between 300 and 900. The higher the score, the better. Generally, a score above 750 is considered good where the chances of loan approval become higher. It is a numerical summary of a consumer’s credit history and a reflection of the person’s credit profile. It indicates the credit behavior of a borrower. It also reveals if the person has ever defaulted on their repayments. This score gives an overall indication of the person’s creditworthiness and history.
The report containing the CIBIL score is called the CIBIL report. The report contains tabs – personal information, contact information, employment information, account information and application information.
How important is the CIBIL score?
Each time one goes to take out a loan or a credit card is issued, the financial institution first checks their CIBIL score, to ensure creditworthiness and risk profile. The CIBIL report allows the bank to view a person’s credit history, including whether the person has been punctual in repaying their previous debt. It also shows how many loans the person has taken so far, including the amount and duration of previous loans. It includes both credit cards and loans. It helps banks mitigate the risk of failure and thus reduces losses.
The bank only grants a loan if the person’s CIBIL score is good. Thus, maintaining a good score is very important. The score also saves individuals from worrying about paper to prove previous credit records.
According to a report by PWC, credit card issuance has grown significantly in India at a compound annual growth rate of 20% over the past four years. The number of credit card holders increased from 29 million in March 2017 to 62 million in March 2021. It further increased by 26% and 23%, respectively, in 2019 and 2020.
(The story was originally published on April 21, 2022)
Read all the latest business news, tax news and stock market updates here