What Is a CIBIL Score, and Why Does It Matter for Your Loan?

Before a lender looks at your salary slip, it looks at one number: your credit score. Many people call it the CIBIL score, after the best-known credit bureau in India.

What the number means

The score runs from 300 to 900. It is worked out from how you have handled loans and credit cards in the past. A higher score tells the lender that you pay on time. Most lenders are comfortable with a score of about 700 or more, though each lender sets its own line.

What goes into it

• Payment record. Whether every EMI and card bill was paid on time. This matters most.
• How much of your limit you use. Spending close to the full card limit every month pulls the score down.
• How long you have had credit. A long, clean record helps.
• The mix. Some secured loans, such as a home loan, with some unsecured ones looks healthier than only credit cards.
• New applications. Many applications in a short time lower the score.

Why it matters

A good score makes approval easier, and it can also get you a lower rate or a bigger amount. A low score does not always mean no. Some lenders still lend, usually at a higher rate or with security.

If you have never borrowed

Then you may have no score at all. That is not a bad score, but the lender has nothing to judge. A small loan or one credit card, paid in full every month, builds a record in six months to a year.

How to improve it

• Pay every EMI and card bill by the due date. Set an automatic payment.
• Keep card spending well under half of the limit.
• Do not close your oldest card: it carries your longest record.
• Clear any amount shown as overdue, and ask for it to be marked closed.
• Check your report once or twice a year, and ask the bureau to correct any mistake.

Two things people get wrong

Checking your own score does not lower it. Only a check made by a lender for an application counts. And being a guarantor for somebody else is on your report too: if they pay late, your score falls.

The short version

The score is a record of whether you pay on time. Pay on time, use less of your limit and apply to few lenders, and the number looks after itself.

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