There are a few bits of financial wisdom that everyone needs to follow. Having an excellent credit score is one of them. An essential part of your financial health, a great score unlocks doors to many benefits, from loan eligibility to visa applications. Anywhere between 700 and 900 indicates a good CIBIL score, making your lenders confident about your creditworthiness.
This guide will unlock a range of benefits of a good credit score, putting you in the driver’s seat for your financial future. We’ll dive into how a cibil score increases your chances of loan approval and empowers you to make informed financial decisions.
What is considered a good credit score in India?
Your credit score, specifically your CIBIL score, is a pivotal factor in personal lending, particularly within the domain of fintech companies.
Serving as a numeric encapsulation between 300 and 900, it is a comprehensive snapshot of your credit history, detailing your financial reliability and repayment behaviour. This score acts as the cornerstone of assessment for various financial entities, including banks, digital lenders, and credit unions, shaping their decisions on loan approval and determining the upper limit of the loan amount. As your score approaches the coveted 900 mark, your prospects of accessing the desired funds increase significantly.
A good credit score, generally between 700 and 900, not only signifies your trustworthiness in fulfilling debt obligations but also portrays you as a low-risk borrower in the eyes of lenders, thereby enhancing your borrowing capabilities and unlocking access to favourable loan terms and interest rates.
Important Factors that Affect Your Credit Score
Building a strong credit score relies on several key factors, including:
- Payment history: This is the most important factor. Paying bills and credit card instalments on time consistently demonstrates your ability to manage credit responsibly, which helps your score. Conversely, late payments, debt settlements, and other issues can significantly lower your score.
- Credit report accuracy: Mistakes on your credit report, such as incorrect defaults, loan or credit card errors, or even personal information mishaps, can bring your score down. It is essential to regularly check your report and promptly disputing any errors.
- Multiple loan inquiries: Applying for too many loans or lines of credit in a short period can hurt your score. This might signal a high need for credit, and lenders may view it as a risk.
- Public records: Bankruptcies, foreclosures, and other negative public records can significantly lower your credit score and take several years to recover.
- Credit mix: Having a healthy mix of credit accounts, such as credit cards and installment loans (e.g., mortgages, and car loans), can positively impact your score. This demonstrates your ability to handle different types of credit responsibly.
Role & Benefits of a Good CIBIL Score
Here are 5 of the top reasons you need to keep an eye on your score and find ways to improve it.
- Quicker Approvals for Loans
If you have been planning to buy a house or a new car for some time, make sure you have a good credit score. A good credit score makes you eligible for many loans like home loans, car loans, personal loans, and more. Not only will the lender approve your loans quickly, but you will have bargaining power. This is because a good credit score shows that you can pay your EMIs on time.
With a higher credit score, you will be able to secure a lower interest rate which means affordable EMIs. A slight decrease in interest rate can help you save a lot of money over the loan’s lifetime. In addition, if you are building a new business from scratch and seeking working capital loans, a decrease in interest rates will help you repay the loan easily.
However, note that lenders also consider income level and debt to approve loans. Nevertheless, a good credit score will provide you with more confidence. You must pay the EMIs on time so that your scores improve. Paying off a loan is good to build a credit score. And when you use BNPL services, you start with a small credit line. When you pay off your bills with such services, you display a good reputation for repaying what you borrow, thereby increasing your credit score.
2. Get Approved for Higher Credit Limit
A good credit score increases the chances of getting issued a credit card with higher limits and lower interest rates. In addition, the more you demonstrate good repayment capacity, the higher are chances of increasing limits. Thus when you make regular repayments on your LazyPay account, your credit score increases over time. However, note that if your use 50% of your credit limit regularly, it can hamper your score.
Also, make sure you don’t apply for too many loans and credit cards in a short period. This is because the hard inquiry conducted by lenders on your application hurts the credit score. It shows that you are desperate for financial help. However, this is different from a soft inquiry, which is when you extract your credit information. While closing a loan is good for your credit score, the same can’t be said about credit cards. Closing a credit card account could impact the score.
3. An advantage for Visa Applications
Add weightage to your visa application with a good credit score. While your income tax records are given more importance by countries like the US and UK for visa approvals, a good credit score also gives you an upper hand. This is good for individuals who might apply for higher education after a few years of job experience. It gives them time to build the score.
Some employers in the west also check your credit reports during the selection process. Your report should show good financial responsibility. If you plan for a work visa in a foreign country, you need to take your report seriously.
4. Get Lower Insurance Premiums
You might want to protect yourself against future liabilities with a car or home insurance. A good credit score can help you get a lower premium amount. This is particularly important if you are an entrepreneur, and seek protection for your company fleet or business premises.
5. To Get a House on Rent
The landowner might take an interest in your credit score to lease you a flat or house. If you have a bad repayment history for loan EMIs or credit card payments, it could make them wary. You will need to spend time and resources once again to find a renter who won’t mind your bad credit history. Instead, keep a good credit score to get a house in a good locality.
6. Faster access to credit:
A high score often means receiving pre-approved loan and credit card offers. These require minimal paperwork and boast quicker approval times compared to traditional applications.
7. Premium Credit Card Options
Lending platforms prioritise credit scores when evaluating applicants. A strong score increases your chances of qualifying for premium credit cards with better rewards programs, cashback benefits, and exclusive perks.
8. Build and Check Your Credit Score with LazyApp
With all that said, Indian financial institutions remain hesitant to provide loans and credit to customers without a credit history. In the absence of these products, people can’t build one. This vicious cycle can halt aspirations and create problems during emergencies.
LazyApp offers you credit options to help you build and maintain a good credit score. The more you repay your instalments on time, it will reflect positively on your score. Further, LazyApp has collaborated with CIBIL so that you can check your credit score for free.
When you activate LazyPay Credit Shield, you can:
- Check your credit score and access your credit report
- Get alerts on missed payments and avoid misreporting
- Use expert insights on ways to improve your credit score
Monitor your credit regularly to avail financial products at better terms.
How to Maintain a Good Credit Score? Key Steps Revealed!
Understanding how a CIBIL score increases is essential for improving your creditworthiness and accessing better loan terms. Improving your credit score involves a strategic approach encompassing five key steps:
- Clear all your existing debt
Start by prioritising the repayment of any outstanding debts you currently have. This includes credit card balances, personal loans, or other borrowed funds. Paying off these debts demonstrates financial responsibility and reduces your overall debt burden, positively impacting your credit score.
2. Pay your EMIs on time.
Ensure you consistently make timely payments towards your Equated Monthly Instalments (EMIs) for any loans or credit accounts you hold. Timely payments are a key indicator of your creditworthiness and reflect your ability to manage debt responsibly. Setting up automated payments or reminders can help you stay on track with your payment schedule.
3. Limit your credit utilisation
Keep your credit utilization ratio—the amount of credit you’re using compared to your total available credit—low. Aim to use only a small portion of your available credit to demonstrate prudent financial management. High credit utilization can signal financial strain and may negatively impact your credit score, so keeping it low is essential for maintaining a healthy credit profile.
4. Report discrepancies in your credit report (if any)
Regularly review your credit report for any inaccuracies or errors. If you spot discrepancies, such as incorrect account information or fraudulent activity, promptly report them to the credit bureau for investigation and resolution. Resolving these issues ensures that your credit report accurately reflects your financial history and helps maintain the integrity of your credit score.
5. Borrow a mix of credit.
Diversify your credit portfolio by borrowing from different types of credit sources. This might include a combination of car loans and revolving credit accounts, like credit cards. Having a diverse mix of credit demonstrates your ability to responsibly manage various types of debt, which can positively impact your credit score over time.
Additional Strategies to Boost Your Credit Score
While on-time payments and credit report accuracy are crucial, building a strong credit score involves more than just those fundamentals. Here are some additional strategies to consider:
- Choosing a Longer Repayment Tenure
Opting for a longer repayment tenure could result in higher available funds and reduced monthly EMIs. While this may lead to a higher total interest payment, it can ease monthly repayment burdens and lower your EMI-to-income ratio, making debt management more manageable. A lower credit utilisation ratio demonstrates responsible credit management and positively impacts your score.
2. Increasing Your Credit Limit
A credit limit increase can improve your credit utilisation ratio if you don’t significantly increase your spending. A credit limit increase is a temptation to spend more. Only request an increase if you’re confident you won’t overspend and raise your overall credit utilisation.
3. Maintaining a Healthy Credit Mix
Various credit accounts, including credit cards and instalment loans, can positively impact your score. This demonstrates your ability to handle different types of credit responsibly. For instance, your credit report might be limited if you only have credit cards but no instalment loans. However, avoid opening too many new accounts quickly, as this can be seen as a sign of needing more credit and negatively affect your score.
4. Regular Credit Report Monitoring
Even minor mistakes on your credit report can significantly lower your score. Make a habit of checking your credit report, and if you find any errors, dispute them immediately with the credit bureau and the creditor who provided the information.
Build and Check Your Credit Score with LazyApp
With all that said, Indian financial institutions remain hesitant to provide loans and credit to customers without a credit history. In the absence of these products, people can’t build one. This vicious cycle can halt aspirations and create problems during emergencies.
LazyApp offers credit options to help you build and maintain a good credit score. The more you repay your instalments on time, the more positively your score will be reflected. Further, LazyApp has collaborated with CIBIL so that you can check your credit score for free.
When you activate LazyPay Credit Shield, you can:
- Check your credit score and access your credit report
- Get alerts on missed payments and avoid misreporting
- Use expert insights on ways to improve your credit score
Monitor your credit regularly to avail yourself of financial products at better terms.
Frequently Asked Questions
1. What is good CIBIL score? How much CIBIL score is good?
Typically, a credit score between 700 and 900 on the CIBIL scale is regarded as favourable.
2. What is the good CIBIL score for personal loan?
A CIBIL score surpassing 700 is commonly seen as sufficient for securing a personal loan, contingent upon meeting the remaining eight criteria.
3. What is the good CIBIL score for credit card?
Typically, a credit score above 700 is seen as sufficient for qualifying for a credit card. However, individuals without an established credit history can still access secured or entry-level credit cards.
4. Does CIBIL score affect visa?
While your CIBIL score may not directly influence visa applications, some countries consider it as part of their immigration assessment criteria.
5. Why is my CIBIL score not increasing?
A stagnant CIBIL score can result from various factors such as missed payments, high credit utilisation, or errors in your credit report. Identifying and rectifying these issues can help boost your score gradually.