CIBIL is an acronym for Credit Information Bureau Limited and this bureau allocates a CIBIL score to every legal entity that participates in the financial system. It is used to compare Consumer Credit History information from different credit bureaus. The threat of having a low credit score is real and can have a negative impact on a person’s financial life. This can be especially true for those just getting into the world of finance who have very limited experience with the credit market. With the help of cibil score, consumers can improve their credit history over time and limit their risk of harming their credit score by taking out loans or applying for mortgages. So before you try to understand the intricate details of cibil like what does cibil score minus 1 means it is important you understand how this score affects you. Let’s find out in detail why your CIBIL score is important:
1. Creditworthiness
The CIBil score is a measure of an applicant’s creditworthiness. It is the most widely used metric in India for evaluating the credit risk of a loan applicant. The scores are computed using statistical models and can be used to gauge the probability of default. While there are other factors that go into deciding whether to grant a loan, such as employment history, net worth, etc., the CIBil score is one of the most important ones. It is also one of the factors used by employers in their hiring decisions.
2. Application approval
If you have a low credit score, it can be difficult for you to get approved for a loan or other type of credit product. This is because lenders will want to see that you have enough money saved up so that they can feel confident in their risk assessment when making an offer on your behalf.
The CIBil score makes it easier for organizations to approve loans in a short period of time because it helps them reduce their risk exposure by reducing the number of applications they receive and reducing the amount they have to invest in processing each application. This improves turnaround time and reduces costs for organizations like banks, non-banking finance companies (NBFCs) and microfinance institutions (MFIs).
3. Affects interest rates
On several occasions, people don’t take personal loans because the interest rate is too high. However, if you have a good cibil score you can decrease your interest rate considerably. Additionally, they will have numerous lenders who would be more than willing to give them the loan. This is why the CIBIL score also indirectly affects your repayment tenure. This is because if your interest rate is lower you have the benefit of smaller repayment tenure and you can pay back your loan faster. This will make it very easy for you to meet your annual loan deadlines. If you learn how to calculate cibil score, you can see for yourself how your cibil score is directly linked to the interest rates and how much of an effect it has.
4. Loan amount
The amount of loan you are eligible for is directly dependent on your CIBIL score. IF you have an excellent CIBIL score you will automatically be eligible for a higher loan amount.
