October 2, 2024 · 11 mins read
What is the best CIBIL Score, and How to Achieve it
Santosh Kumar
“CIBIL Score” is a term often used in the world of finance, particularly in India, where it is important terminology when discussing your credit score. In India, when it comes to understanding your Credit score or taking a look at your creditworthiness, a CIBIL Score is the most sought-after indicator. Through this article, we will attempt to understand a CIBIL Score, what is a good cibil score in India, what is the best credit score, which cibil score is good, how it is calculated, and how to achieve it.
Firstly, let us start with the basics. What exactly is a CIBIL Score? A CIBIL Score is your credit score generated by CIBIL, which stands for Credit Bureau (India) Limited, one of the major credit bureaus in India, established in 2000. It is an RBI-licensed bureau that collects and maintains the financial records of individuals and their credit behaviour. They are instrumental in guiding lenders and financial institutions to assess the creditworthiness of an individual. A CIBIL score is basically a tool to analyse, evaluate and assess a person's credit history and map his potential as a borrower. A CIBIL score ranges from 300-900, and this score represents your creditworthiness. The range between 300-650 is considered to be on the lower side, marking you as a risky borrower, while a score of 650- and above will mark you as a borrower with low risk.
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People often ask which cibil score is good or what is the best cibil score, and of course, the answer is a perfect 900, which is the highest score and automatically makes it the best score. However, scores between the range of 750 and 900 are considered to be excellent and come with many financial perks when it comes to borrowing.
What exactly comes with having a high CIBIL score or the “best CIBIL Score”?
A high CIBIL score automatically translates to being creditworthy and having a low-risk profile as a borrower. Your CIBIL score is a reflection of your financial behaviour, and a higher CIBIL Score means that your credit financials are well-built and well-maintained. Lenders like banks and financial institutions are more likely to consider you for loans and credit cards; they are more comfortable with you as a borrower because you are highly creditworthy and low-risk. These are the many areas in which you will have an added advantage by scoring a high CIBIL Score
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1. Better deals on loans and credit cards: A high CIBIL score will increase your chances of securing a good deal on a loan or a credit card with maximum benefits and a higher credit limit.
2. Good deal on rate of interest: Another perk of having a good CIBIL score is that you can avail of lower rates of interest on your loans and instalments. Even a minor reduction in rates can be hugely beneficial in the long run, so this is again a huge benefit of having a high CIBIL Score.
3. You can enjoy a higher credit limit: Credit Card holders with high CIBIL scores can enjoy maximum credit limits on their cards. They also have better deals on pre-approved loans.
4. It influences renting and employment opportunities: Many property owners and potential employers may look into your credit score to gauge your financial stability and standing. A good CIBIL score will help you secure good rentals. Similarly, when it comes to employment opportunities, some positions, especially ones that involve money management, give you a better chance if you possess a higher CIBIL score, which again reflects your low-risk status to your employer.
These are the main areas influenced by your CIBIL Score. When it comes to building a business, building a financial portfolio, or even managing your day-to-day expenses, having a high CIBIL score definitely helps you. If you are looking to borrow or make big purchases through your credit card, a high CIBIL score guarantees that the process will be hassle-free and that you will have access to the amount of money that you require.
The next step is to understand how to achieve the best CIBIL score. Well, since a CIBIL score reflects your marks on your creditworthiness, there are certain criteria through which the score is calculated. These criteria are discussed below individually to give you a clearer picture of the calculation process.
The score is basically a culmination of your credit behaviour as a borrower, and that is affected by the following variables
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This accounts for about 35% of your credit score and reflects the payment history of your loans and credits. It traces back your payment history of the loans and credits you have had in your name, tracks your payment cycles, and sees whether you have made all of your payments on time. Any delays or missed payments will negatively impact your score.
This makes up 30% of your score and measures the amount of credit that is available to you vs. the amount that you are using. It shows how responsible you are with credit. A 30% or below credit utilisation ratio will have a positive impact on your CIBIL score, while a higher utilisation ratio will mean a lower score for you.
If you have a longer credit history, this will have a positive influence on your score. It takes into consideration your oldest credit account and the average of all of your credit accounts. A longer credit history shows your credibility as a trusted borrower. This accounts for about 15% of your credit score.
This reflects how diverse your credit range is. It is better if you have a mix of credit types, such as personal loans, auto loans, credit cards, etc. This accounts for about 10% of your credit score.
The final contributor is your history of inquiries. For example, making numerous hard inquiries one after the other has a negative impact on your score, as lenders can understand this as a potential risk. Hard inquiries are inquiries made through loan applications and with a paper trail.
Now that we understand how CIBIL scores are calculated, we also need some tips and best practices to achieve the best CIBIL score and maintain that high score. In the previous section, we understood how the score is calculated and what variables affect the overall score. In this section, we will keep those in mind as the best practices are a direct follow-through of those factors.
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1. The first practice is to always pay your bills on time; punctuality and dedication are key factors when it comes to building a good credit history. Whether you set up timely reminders or enable automatic payments for your monthly payment cycle, you need to make your payments on time every month until you have paid off your debt. This is a sure shot way to positively impact your CIBIL score.
2. The next practice is to never max out on your credit allowance. Always follow the tip of utilising only 30% of your maximum credit so that lenders know that you are not entirely dependent on credit for your expenses.
3. Thirdly, avoid making inquiries and applications for multiple loans and credit cards. Each time you make an inquiry or application, you leave a paper trail that translates to a hard inquiry, limiting your chances of getting a good credit score. Only make inquiries that are genuine and needed. But, does checking cibil score affect cibil score? The answer is No. Checking your own credit score does not affect the score.
4. Create a diverse credit portfolio by taking a mix of credit types, such as personal loans, credit card purchases, home loans, etc. A mix of secured and unsecured loans will positively affect your CIBIL score.
5. Always monitor your transactions for any unwanted fees, discrepancies, or unauthorised transactions. If you notice any irregularities, always inform the bank and keep proper records of all the details.
6. Try to keep your old accounts open. The duration of your credit history matters when it comes to calculating your credit score. Even unused older accounts can positively affect your CIBIL Score.
7. Try to increase your credit limit so that your credit utilisation ratio can be lowered even if you use the same amount. An increased credit limit will mean that the same amount will have a lower ratio with the increased limit.
These are some of the best practices that can be followed to achieve the Best CIBIL score. Of course, scores may vary depending on individual credit history and current financial standing, but these practices, in general, will help you build a stronger credit portfolio and will help you maintain it if you have already secured a high CIBIL score.
Read More:: Is a 750 Credit Score Good?
A CIBIL score is an identifying marker which makes you visible to lenders and shows your potential worth as a borrower. A high CIBIL score comes with many advantages when it comes to building a strong personal finance profile for yourself. Achieving a high CIBIL score will show that you are reliable as a borrower and that you are good for your credit. This is why individuals seek to attain the best CIBIL scores and work to maintain the score among the higher ranges. With a basic understanding of how the scoring system works and the process of calculation, along with tips on how to maintain the score- you certainly are off to a good start.
A good CIBIL Score is a tool that can help you many doors of opportunities when it comes to finance in India. Whether you are looking to set up new business ventures, expand old business, invest in properties, buy a house, buy a car or start anything that requires huge financial support- having a high CIBIL score will provide you a firm footing in the financial world. It will come with privileges; you will have visibility and better chances of negotiating good deals and better rates with loans.
The best CIBIL score will hugely impact your financial standing and allow you to make important financial decisions confidently. Once you have understood the concept, understood its significance, and are wary of its impact on your financial identity, it empowers you to manage your financial decisions more easily. It also dictates that you have sound money management habits, regulate your spending and your expenses, and maintain an overall healthy financial habit that will greatly benefit you in the long run. A deeper understanding of the CIBIL score and how it operates will sensitise and open up your eyes to a wider realm of financial and economic systems- it is a must for everyone who wishes to create a better and stronger financial future for themselves.
What are the benefits of a high CIBIL score?
A high CIBIL score ensures that you will have better rates of interest on loans and a higher credit limit on credit cards. It will strengthen your portfolio as a low-risk borrower with lenders.
Is 750 a good CIBIL score?
A score of 750 can be considered the starting point of a high credit score. It isn't the highest in the range, but it is certainly considered a high score.
What is the best CIBIL score ?
The highest CIBIL score one can achieve is 900, the highest in the range.
Who calculates the CIBIL score?
In India, the CIBIL score is calculated by CIBIL—Credit Bureau (India) Limited, now known as TransUnion CIBIL Limited—a licensed and registered credit bureau that has been working since 2000.
What is the starting score in the CIBIL score?
The starting score for a CIBIL score is 300, which is considered to be a low score.
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