Borrowers’ FAQs: What is a CIBIL Score? Why It Affects My Personal Loan Application?

Updated on: 13 Apr 2022 // 25 min read // Personal Loans
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At any time when you apply for a loan, you will come across many kinds of checks and verifications. The common types of checks include your basic Know Your Customer (KYC) documentation, income proof documentation, tax-related documentation, and the CIBIL score. While all other documents are pretty self-explanatory, the CIBIL score is something that stumps a very large number of first-time borrowers.

Let us have a look at what a credit score is and how does it affect when you Apply for a Personal Loan.

What is CIBIL?

Credit Information Bureau (India) Limited, popularly known as CIBIL is the company that keeps track of borrowers in India. The company is one of the top four credit reporting companies in India, but since it was the first of its kind, it has now become synonymous with credit reporting activities all over the country.

The company was started in the year 2000 and started consumer credit bureau activities in the year 2004. Their first consumer credit score was launched in 2007 and came to be known as the CIBIL score. In 2016, the company was acquired by TransUnion, the USA based credit reporting company, to go to its current identity as TransUnion CIBIL.

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What is CIBIL Score?

CIBIL Score is the credit score given to various borrowers by CIBIL based upon many different parameters. These are: how much credit they are eligible for, how much they have utilized at any given point of time, how prompt and regular they are with repayments, have they cleared all their previous loans on time or have they chosen to settle and how many times are they seeking credit.

CIBIL Score is assigned as a three-digit rating, which will be anywhere between 300 and 900. The closer the score of an individual is to 900, the better it is for them as a borrower. They get higher Personal Loan Eligibility and lower Personal Loan Interest Rates.

The CIBIL credit score is a credit health indicator of the borrower. It tells the lending institution if the said borrower will be able to return all debt on time or if they will default on their borrowings.

The CIBIL score allows a lender to make informed choices in their business decisions by giving them a predictive insight into consumer risk. Banks and NBFCs can check if a person they are about to lend money to can run a risk of defaulting on one or more of their tradelines from as near as the next 91 days to within the coming 12 months. This means that banks only tend to give loans to people who have a good credit score.

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Why is CIBIL score important?

CIBIL score is very important for people who are looking for a Personal Loan. Once you have filled in an application form for a loan and sent it to the lender, their very first step will be to check your credit score. If your score is too low, basically anywhere below 550 or 600, the loan application may be summarily rejected. If the score will match the basic lending criteria set by the bank, they will process your application further. Just like in life, your CIBIL Score is the first impression that you make on a bank or lender; if it is good, you are good, if it is bad, you are out!

Also Check: Commercial Cibil Report

How does a CIBIL score impact your Personal Loan application?

Better score means higher limits:

This is the first and the most important advantage of a high credit score on Personal Loan applications. If you have a good credit score, your Personal Loan eligibility will be higher. People with better Credit Score tend to get twice or even three times higher loan eligibility when they apply for loans.

Furthermore, the banks will also be willing to lend to these people for longer durations. If a person with a medium credit score can get a Personal Loan for 3 years, a person with a high credit score will be able to get Personal Loans for as long as 5 years. So, it is recommended to build a strong CIBIL score if you want to borrow more for longer periods of time.

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Better score means better deals:

For Personal Loans, the interest rates are high, and so are the processing charges, but banks are always willing to deliver the best deals to customers they can rely on. If you have a poor credit score, they will only offer you high-interest rates and high processing fees. If you have a good credit score, you can tell them that you are a prime customer and have an established track record of timely loan repayments. You can ask them to offer the lowest possible processing charges and the lowest possible Personal Loan Interest Rates. Good deals come with a good CIBIL score!

A better score means more ability to shop around:

A good credit score also means that you can shop around for a loan. If one lender is not offering you the rate of interest or principal amount or loan tenure that you want, you can always check with other lenders. Tell the sales teams of different lenders that you have a very good CIBIL score, and you are willing to borrow from any bank or NBFC who is open to lending you money on your terms. This is what makes getting a Personal Loan a buyer’s market as opposed to a seller’s market for people with a low credit score.

A better score means faster processing:

If you have a low credit score, the lender will take your application process very slowly. They will check and cross-check every detail. They know that this is a high-risk deal, and as a result, they will undertake all the due diligence and review process with a fine-toothed comb. If you have a good CIBIL score, the sales team of lenders will practically run around you to make you take a loan from them. The reason is simple. Getting a customer with a high credit score will earn them much more sales commission as opposed to getting a customer with a lower credit score. Not only will they accept your terms and offer better discounts, the sales team will also push the processing team for faster work on your Personal Loan application.

All in all, the CIBIL score is the single most crucial aspect based on which your loan will be granted or rejected. All other factors are secondary to it. So always try to maintain a strong credit score.

 Also Read: Can I Avail a Personal Loan without Cibil Score?

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