In the backdrop of increasing inflation, a lot of people today wish for a home. To make this dream come true, banking institutions are providing home loans to most people. CIBIL score or the credit score plays a vital role in deciding whether you will be given that loan and its terms and conditions.
Neglecting the CIBIL score would mean losing many pennies, which could be anything from Rs 19 lakh and above. Therefore, let us discuss why your CIBIL score is important, how it affects your financial circumstances, and what you can do to increase it.
What is a CIBIL Score?
CIBIL score is a three-digit number that ranges between 300 and 900 and represents the creditworthiness of an individual. This means an overview of one’s financial behavior about loans and credit cards. Appraisable scores warrant a lower risk on the part of an individual, whereas scores that would go low might lead to rejection or higher interest rates.
Your CIBIL score commences the day you take a loan for the very first time, which means it starts developing along with a record of your financial repayment history. Thus, the more months you repay the loan installment successfully on time, the higher your score climbs. Irregular payments, missed payments, or defaults, arrive with downgrades for your CIBIL score. For every lender, a bad CIBIL score for the defaulted period will keep weighing on the individual for many years, thus adding to the difficulty of procuring loans, credit cards, or even insurance, to say the least.
How a Poor CIBIL Score Can Cost You Rs 19 Lakh
Let us say you are applying for a home loan with an amount of Rs 50 lakh for a period of 20 years. Assuming your CIBIL score is 820, you should be charged an interest of approximately 8.35%. Accordingly, all billed for over 20 years will be Rs 1.03 crores, including Rs 53 lakhs in interest.
If, however, the CIBIL score in this example goes down to 580, the interest rate could slide up to 10.75%. The second applicant with a failed score ends up with a repayment figure of Rs 1.22 crores over the same period, making an extra Rs 18.82 lakh just because he disregarded the CIBIL score.
The Domino Effect of a Bad CIBIL Score
An unfavourable score, while primarily affecting loan eligibility, extends its reach to several other areas that include your financial life:
- High-interest rates: Banks encounter a much wider risk and therefore charge higher rates from customers with low CIBIL scores.
- Loan Declines: Loans with bad or negative credit scores will probably be outrightly denied.
- Insurance premium: Insurance companies analyze you with a higher probability of filing claims and thus deal with higher premiums or simply deny coverage.
- Difficulties in attaining Credit Cards: Attaining one becomes harder, and if you do, it is possible with a low limit.
What Ruins Your CIBIL Score?
Here are several issues that can damage your CIBIL score:
- Missed Loan EMI Payments: Defaulting on or being late for loan repayments are a very common cause.
- Late Credit Card Payments: Delay in credit card bill payments also negatively affects your CIBIL score.
- High Credit Utilization: Using more than 30 per cent of your credit limit might hurt your score.
- Loan Settlements: Loan settlement amounts less than the owed amount do considerable harm to one’s CIBIL.
- Frequent Loan Applications: Making credit card or loan applications too frequently for a short temporal interval decreases one’s score.
How to Improve Your CIBIL Score
The silver lining is that your CIBIL score does not have to remain poor always. In a case of an unfavourable CIBIL score, you can make amends to improve it with discipline and the right technique. The following can be done to fix a low CIBIL score:
- Pay EMIs and Credit Card Bills on Time: Nothing beats timely payments for getting your score up.
- Maintain Low Credit Utilization: Do not exceed 30 percent utilization of your credit limit.
- Do Not Apply for Multiple Loans: Keep a gap between your loan or card applications.
- Clear the Outstanding Debts: Pay any debts or defaults that are pending with you immediately.
- Build a Credit History: If you have never taken a loan, consider taking a small loan or credit card and pay the installments punctually so that you can create a credit history.
- Regularly Monitor Your CIBIL Report: Keep checking your CIBIL report for errors and dispute inaccuracies when they arise.
Read Also: Credit Card Rules Update: Major Changes for SBI and IDFC First Bank Customers from April 1, 2025