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If you are looking around for loans and credits, you may have heard about the CIBIL Score. Everyone tells you that it needs to be high, but what is the meaning of a high CIBIL Score and the benefits of having one? In this article, let’s take a look at the ways a high credit rating can help you when it comes to taking out a loan.
Table of Contents
Firstly, it’s important to cover the basics and talk about what the CIBIL Score actually means. In simple terms, it’s a grade or an evaluation that you get for managing your credit. So if you are good at paying off your credit on time, don’t overuse it and have a well-managed loan portfolio, you’ll have a high CIBIL Score. Meanwhile, if you do not, then your score will be lower. The overall scores range between 300 and 900 points, and you want to be as close to 900 as possible. That said, anything over 750 is typically considered a good CIBIL Score.
When you apply for credit with a bank or a different type of lender, the first the institution is likely to do is check your credit score. They will send a request to TransUnion CIBIL to receive both the overall score and the Credit Information Report (CIR). If you have a good credit score, then the bank will proceed to review other details submitted as part of your application. The higher score tells the bank that you are a trustworthy borrower, which means they will be more inclined to approve your credit application. Meanwhile, if your score is very low, they might just reject the application altogether or request more information.
Typically, applicants with higher CIBIL scores will qualify for the lowest interest rates. An interest rate is basically the percentage you pay for the service of borrowing money. The lower it is, the less you are being charged in addition to your regular payments on what you have borrowed. Because the bank sees that you have a high score, they trust to pay back in time and give you a lower score. They also know that you have the option to shop around with other banks and want to retain you as a customer. On the other hand, a lower score might lead to higher interest rates, acting as insurance for the lender.
One of the big reasons to take out a loan is for buying a house. For this, you’ll likely need quite a hefty sum of money, so you want to get the highest loan possible. The better your credit score, the more chance you have to be approved for a good loan amount that will allow you to invest in a comfortable home. On the other hand, credit scores can also affect your ability to rent or lease an apartment or house. The landlord may request a credit score rating before they rent out space. Since evictions or not paying your rent on time can cause your rating to go down, the landlord will watch out for that before approving your rental application.
There are a few reasons why would want to have a high credit limit. First of all, you may need the money up front to make a bigger investment, be it for a house, a car, or otherwise. A high credit line also means that you have a better ability to deal with an emergency, giving you some room to borrow freely if a particular situation arises. When you have a high CIBIL Score, you are more likely to be approved to borrow more money.
Often, banks have all the power when it comes to managing personal finances. But a high CIBIL Score can give the power back to you! Since being well-ranked means that you will have many financial institutions to choose from, you can apply for different loans and credits and review which options suits you best. You can also negotiate with the bank by showing them the competing offers and ensuring that you get the highest loan at the lowest interest rates. Unfortunately, if your credit score is pretty low, you lose all that power. Rather, you are at the mercy of the financial institutions to choose to loan to you at the rates that they set.
Trust is important in financial transactions. Since a high credit score signals that you are trustworthy, other services besides banks might allow you to avoid deposits. For example, cell phone contracts often want you to make a security deposit, but with a high CIBIL Score you probably won’t have to. The same applies to security deposits on utilities, helping to avoid inconveniences of getting the deposit back when you move. And don’t forget insurance companies! With a high credit score, you’ll likely to pay less monthly for your car insurance.
Overall, there are many benefits to having a high credit score. The most important ones being the ease of accessing credit when you need it and having the negotiating power to lower interest rates on the credit that you take out. The smaller pros will also make your life easier, by avoiding deposits, getting higher credit limits and lowering your insurance rates. But most importantly, a high CIBIL Score will give you peace of mind that you are able to obtain credit for the big things in life on your terms.
Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.
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