As the Reserve Bank of India (RBI) is raising its policy rates to control high inflation, banks are also following the suit and increasing interest rates on various loans. Borrowers are now looking for ways to get cheaper loans. One way for borrowers to take cheaper loans is by keeping a good CIBIL score. The score shows a person’s creditworthiness. Here’s how a good CIBIL score can get you a cheaper loan and how to maintain a good score:
CIBIL Score and Loan Approvals
Banks approve loans or issue credit cards to only those having a good CIBIL score. The CIBIL report contains the score and other credit details. Banks after examining the CIBIL report can ascertain the repayment discipline of the borrower. It also gives a glimpse of the person’s credit risk profile, based on which banks take a decision whether to issue a loan or not.
Rohit Garg, CEO & co-founder of microlending platform SmartCoin, said, “Credit scores are thriving in the market, from highly reliable credit bureaus to free-floating offerings from payment platforms. There are various ways to ensure loan approval, which include having stable employment, earning viable income, prior credit history, your relationship with the bank, and the most important — CIBIL score, which will help you get a loan easily and effortlessly. Your report will be readily qualified if you will have a good score with comments under certain sections.”
About 79 per cent of the loans are sanctioned to people who have a CIBIL score of 750 and above. Having a higher CIBIL score not only makes it easier for the applicant to get loans easily, but he also gets the loan at a relatively lower rate of interest, according to a TransUnion CIBIL’s report.
A banking expert said, “The interest rate on loans is not fixed across the borrowers. Banks offer a range of interest rates and the rate is based on the borrowers’ risk profile. One of the criteria for a lower interest rate for borrowers is their credit rating. For example, a bank may offer the interest rate on home loans in the range of 7.40-7.70 per cent, depending upon various factors including the risk profile of the borrower.”
The RBI’s Monetary Policy Committee last week unanimously decided to raise the repo rate by 50 basis points to 4.90 per cent with the focus on withdrawal of accommodation. It has prompted the lenders to hike interest rates on loans. Several lenders, including ICICI Bank, HDFC and Punjab National Bank, have raised their home loan interest rates.
What is CIBIL Score?
Ranging from 300 to 900, the CIBIL Score is a three-digit number. The higher score you have, the better it is. Generally, a score above 750 is considered good where the chances of loan approval become higher. This is a numeric summary of your credit history and a reflection of your credit profile, showing your credit behaviour as a borrower. It also reveals whether you have ever defaulted on any repayment in the past. This score gives an overall indication of your creditworthiness and history.
How Can You Maintain Good CIBIL Score?
Don’t Delay Repayment of Dues: If you want to maintain a good CIBIL score, the first and foremost thing is to be strict with the repayments — pay within time and never delay. Repayment of loans or credit card dues has a very big impact on your CIBIL score.
Don’t Keep You Credit Card Limit Exhausted Always: It is advised to get a credit card with a higher top limit, if you are struggling to stay within the existing limit of the card. The credit utilisation ratio should be limited to 30 per cent to have a good CIBIL score.
Diversified Loan Products: It is better to diversify the loan portfolio with a good mixture of both secured and unsecured debt in order to get a high CIBIL score. A credit card is an unsecured debt, whereas a home or vehicle loan is a secured debt.