CIBIL Score for Credit Cards
If you are looking at applying for a Credit Card, it is very important for you to ensure that you have a good credit score. This is one of the primary factors when it comes to issuing Credit Cards besides your income and employment status.
In the year 2000, the Credit Information Bureau of India (CIBIL) was formed. This was done in order to help individuals avail credit facilities easily and to also help lending institutions like banks, NBFCs, and others to understand the credibility of the individual. CIBIL is responsible for maintaining all the information about the credit history of individuals and businesses. Based on the credit behaviour, a credit score is calculated, which is an essential factor in extending any loan or Credit Card.
How Much CIBIL Score is Required for Credit Cards?
The CIBIL score is a three-digit number which ranges from 300 to 900. The closer the value is towards 900, the better is your credit rating. It also helps improve your chances of getting approval on a Credit Card.
Most banks have a minimum amount or a cut off when it comes to the CIBIL score of the individual in order to issue a Credit Card. Normally a credit rating between 700 (750 for some card issuers) and 900 is required in order for an individual to get an approval on a Credit Card.
How is Credit Score Calculated?
Each time you apply for a Credit Card or loan and even when you get an approval on these credit facilities, all the details of the application are sent to CIBIL. Based on the approval on loan, the repayment made towards the Credit Card and loan and the income of the individual, a CIBIL report is prepared and a credit score is issued to the individual.
The credit score of an individual is affected by the following factors:
- Repayment made towards existing credit facilities: According to the terms of a Credit Card, you need to make a payment towards the outstanding amount on a particular date each month. If you fail to make the payment on this pre-decided date, the information is provided to CIBIL and has a negative effect on your credit score.
- The credit mix that you avail: Borrowers have the option of availing various types of credit facilities. The two primary types are secured and unsecured credit facilities. The secured ones are those which you provide collateral or security against. This includes a Car Loan, Home Loan, etc. On the other hand, a Credit Card or a Personal Loan is considered an unsecured credit because you do not have to provide any collateral against it. If you have more unsecured credits, it affects your credit score negatively.
- Using your credit to the maximum: The credit limit available on the Credit Card is the amount that you can spend on it each month. If you are constantly using up your credit to the maximum, it is an indication of financial distress. Therefore, it is recommended that you only use a portion of the credit extended to you. This reduces the burden of repayment and allows you to make repayments on a timely basis, preventing a drop in your credit score. In order to maintain a good credit score, it is recommended that you do not use more than 30% of the credit extended to you on your Credit Card. You must also avoid making cash withdrawals on your Credit Card and reserve this facility for emergencies. Using this facility several times is also an indication of cash crunch and financial distress.
- Making several credit applications: When you want to apply for a credit facility, it is a good idea to restrict the number of applications. It is best to check your eligibility for the Credit Card that you are applying for before you do so. This reduces the chances of your application being rejected. Any rejection of the application is a vital factor in reducing your credit score. Even multiple loan applications or Credit Card applications are reflected upon your credit report. It shows that you are in dire need of financial aid and therefore makes your repayment ability questionable. As a result, your credit score also reduces. The credit score is also negatively affected each time you avail any credit facility.
Benefits of Good CIBIL Score When You Apply for a Credit Card
It is always beneficial to ensure that you have a good CIBIL score, be it when you are applying for a loan or when you are applying for any Credit Card. The higher your CIBIL score, the more the benefits when it comes to availing any credit from a financial institution. The top benefits of maintaining a good credit score when you apply for a Credit Card are as follows:
- You have more choices: If you have a higher CIBIL score, it means that you are eligible for more types of cards. That way, you can choose a Credit Card based on your requirements without any limitations. You are eligible for cards that give you better features like air miles, loyalty points, and other benefits, when you have a better credit score.
- You chances of getting an approval are higher: When you have a good credit score, you do not have to worry about your Credit Card application getting rejected. The chances of approval increase when you have a higher credit score. This helps you maintain a good credit score as well. Any rejection of loan or Credit Cards usually has a negative impact on your credit score. This can be avoided.
- You can negotiate better repayment terms: When you have a good credit score, it means that you are a credible customer whom Credit Cards can be extended to. For any bank or financial institution, finding a good candidate for their Credit Cards is extremely important. Therefore, individuals who have a better credit score have the option of getting great benefits on their repayment terms towards the Credit Card. This includes lowering the overall interest charged or even increasing the interest-free period. You can even get great welcome vouchers and gifts when you have a good CIBIL score as the bank is eager to provide you with a Credit Card.
- The credit limit is higher: When an individual has a good credit score, it indicates that he is she is a good candidate to extend a loan to. This includes the fact that the individual makes regular repayments towards any loan or credit facility availed. It also shows that the individual has a better repayment capacity. As a result, banks are willing to extend the credit limit and can even give you great options when it comes to cash withdrawals on your credit scores.
In order to avail as many benefits on your Credit Card application as possible, it is necessary to maintain a good credit score and also improve it constantly.
Here are some tips to improve your credit score and maintain it:
- Make sure that the repayments made towards your Credit Card are on or before the due date
- Repay EMIs towards loans on time
- If possible, pay the entire outstanding amount instead of making minimum payments towards your Credit Cards.
- Make sure that you consolidate loans and debts as soon as possible, especially any outstanding amount on your Credit Cards as they account for a maximum portion of your credit score.
- Avoid sending out multiple applications for loans or Credit Cards. Choose them as per the features provided and the eligibility criteria to improve the chances of getting an approval on your loan.
- Do not increase the number of unsecured loans. It is a good idea to have a blend of secured and unsecured loans in order to maintain a better credit score overall.
- Ensure that you check your credit report on a regular basis. That way, you can dispute any wrong information that you notice and then make amends accordingly in order to get your credit score back to normal.
Can You Get Credit Card Without a CIBIL Score?
If you have not yet opened your credit, which means that you have not availed any loan or Credit Card in the past, there is no way for a bank or financial institution to check your credibility. This reduces your chances of getting an approval on your Credit Card Application. However, it does not mean that you can never get a Credit Card to manage your expenses.
There are some options that are available to you:
- Start with an add-on card: Get an add-on Credit Card on the one that is used by your parent or spouse. You get the same benefits as the primary Credit Card. However, when it comes to the limit available, it will be shared between both the cards. The add-on card does not have any positive effects on your credit score despite regular payments being made.
- Get a prepaid Credit Card: This is another great option to get a prepaid Credit Card. This is similar to a prepaid mobile card. You have to add some money into your account and make use of the card provided with an equivalent credit limit.
- Choose a secured Credit Card: This is one of the best options available to individuals who do not have any credit score to build one over time. Get a Credit Card against any security like a Fixed Deposit or even your savings account. The credit limit is provided as per the security provided by the borrower. Making regular repayments on this secured Credit Card will help you build a good credit score to get an unsecured Credit Card in the future. It is also useful when you decide to apply for loans.
Why Do Banks Check Your Credit Score Before Giving Credit Cards?
The credit score of the individual provides the most vital information about the individual's financial history. Banks and financial institutions avail a detailed credit information report from CIBIL before providing any credit facilities to individuals or businesses. They are able to check the following details, which are vital for providing Credit Cards or loans:
- The repayment history of the individual which shows how prompt they are in making repayments towards any credit availed currently.
- The existing credits which allow the bank to calculate the repayment capacity of the individual
- The employment details and the income of the individual to verify if they are qualified to get a loan
- If any application made by the individual in the past has been rejected, they are able to verify the reason for loan rejection.
With every credit information report that is prepared for an individual, the bank is able to get a detailed insight into the individual's credit behaviour and history as the following details are provided:
- Credit score: This is the first piece of information that is provided on the CIBIL report. As mentioned before, it is a three-digit number varying between 300 and 900. This is one of the first factors in determining the credibility of the individual in availing a Credit Card facility. In case the individual has not availed any credit in the past, it is denoted by NA or NH. This can mean any of the following:
- The individual does not have a credit history which means that they are new to the entire credit system.
- There has been no credit activity from the individual for several years
- They only made use of add-on cards and have not been the authorised user for a Credit Card yet.
- Personal information: This provides the name, the gender, age, and even personal identification document details such as the PAN card number, the passport number, voter's ID number, and the driver's license number.
- Contact information: Any information that is required to contact the information such as the address, the phone number, and the email-ID is provided in this section. There are multiple addresses in some cases and is denoted as the permanent address, the temporary address, the office address, or residential address as applicable. When it comes to the phone number, you have both mobile number and landline options available.
- Enquiry information: This section shows the number of enquiries made by the individual in the past. It has all the details including the type of credit facility that you have applied for, the name of the lender, and the amount or credit limit that you have applied for. It also provides information on whether the application was accepted by the lender or not with the accounts mentioned in the Account Information Section.
- Account information: This section provides the most vital information for any lender. It has all the details of your loan accounts, personal accounts, and also Credit Card accounts. The details in this section include the type of credit facility that you have availed, whether you hold the account singly or jointly, the date when the account was opened, the last payment made in each account, the current balance on each account, the amount overdue, and also the repayment frequency. You can get information up to 36 months on the credit report of the individual.
- Red box: In case any dispute is raised on an account, it is denoted with a red box. This red box will be removed as soon as the dispute is resolved. In case the information is not changed, it means that the updated information has not been provided by the bank to the credit bureau.
Credit Cards for People with Bad Credit or Low CIBIL Scores
For individuals who have a low or bad credit score, getting a secured Credit Card is an option. However, it is extremely important to improve your credit score before applying for any added credit facility. This will only add to your repayment burden and will also impact your credit score negatively. You also have the option of pre-paid Credit Cards if you have a very low CIBIL Score.
What factors affect the CIBIL score negatively?
The following scores have a major impact on your credit score:
- Delaying any payments due towards loans or Credit Cards
- Making multiple loan applications or having any application rejected
- Having too many unsecured loans when compared to secured loans
Can I use my add-on card to build credit?
No, in case of an add-on card, it is the primary user who is responsible for making payments towards the Credit Card. Therefore, it does not reflect on the repayment capacity of the add-on card user. However, if there are any delays in the payments made towards the card, it negatively affects the credit score of the primary card user as well as the add-on card user.
If I am a guarantor for a loan, how will it affect my credit score?
Your CIBIL report makes a note of all loans that you have provided a guarantee for. In case any delay or default in the payments towards the loan is made by the person that you provided a guarantee for, it affects your credit score negatively.
Even after I have foreclosed a loan, why can I see an outstanding amount in my credit report?
Usually, it takes up to one month for the information to be updated on your credit report after you have closed a loan or made any changes. This depends upon the availability of the information and the promptness of the bank in sending the information to CIBIL. However, you can raise a dispute on the CIBIL website in case you find any issues in your credit report.
Why is there a red box on one of the accounts mentioned in the CIBIL report?
This is because the account is currently under a dispute. The red box will be removed when the dispute between the two parties is resolved.
How do I get access to my CIBIL report?
You can log on to the official TransUnion CIBIL website to get access to your CIBIL report. Each year, you can avail one free CIBIL report. If you want to access your CIBIL report multiple times, you can avail a CIBIL membership as per the packages provided on the website.
What should I do to raise a dispute?
You can log on to the official CIBIL website and click on the "Dispute" menu in order to raise a dispute online. You can follow the instructions provided in order to raise the dispute successfully.
There are four simple steps that you need to follow:
- Log on to the CIBIL website
- Under the credit reports section, choose the Dispute Center Section
- Then click on Dispute an Item
- You will have to fill up an online dispute form
- Choose the section that is relevant for the dispute that you want to raise
What is the dispute resolution process?
The first step is to raise the dispute online. Then, the account is marked as "under dispute" by CIBIL and is reflected with a red box against the relevant account. The dispute is then taken up by CIBIL with the lender that is concerned. Following this, the lender may accept or reject the dispute. If the dispute is accepted, the red box is removed. If not, the individual has the option of raising this dispute with the lender directly in order to come to a final settlement.
My credit score reads NA or NH. Can I still get a Credit Card?
If your credit score reads NA, it means that you have not opened your credit yet. This means that you do not have any credit history in terms of loans or Credit Cards in the past.
However, you have a few options to use a Credit Card despite this:
- Get yourself an add-on card
- Opt for a prepaid card to begin with
- Get a Credit Card that is secured with an FD
- Get a Credit Card against your savings account