A high CIBIL score means you are a low-risk borrower and, therefore, likely to repay your debt on time.
When applying for a loan or a credit card, the most common term you will come across is your CIBIL score. The CIBIL score determines whether you are a good candidate for a loan and what interest rate you should be offered. The higher the CIBIL score, the greater the chances of loan approval with a favourable interest rate. How important is it, you might ask?
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Well, a high CIBIL score means you are a low-risk borrower and, therefore, likely to repay your debt on time. On the other hand, a lower CIBIL score reflects a poor financial history, making you a higher-risk borrower and in such cases, you will be offered a higher interest rate.
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A score of 700 or above is generally considered good, whereas below 700 means subprime, indicating that the borrower is more likely to default on a loan. Several factors affect the score, including payment history, credit utilisation and the number of credits taken in the past. Among these, payment history is the most crucial factor, as even one late payment can decrease your CIBIL score. Moreover, high usage of available credit also leads to decreased CIBIL scores.
Notably, there are two categories for inquiring about your CIBIL score: soft and hard inquiries. The classification is based on the purpose for which the CIBIL score is being checked. A soft inquiry is when credit is checked for pre-approval of a loan or account review purposes. On the contrary, a hard inquiry is a credit check done to make a lending decision before approving a loan or extending credit.
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While a soft inquiry does not generally impact your credit score, the hard ones can be a cause for concern if you check your score frequently. Hard inquiries stay on your record for up to two years but only impact your credit score for the first 12 months.
Simply put, checking your credit score frequently should be avoided and should be done only when it is needed. The smart idea is to check your credit report once a year and if needed, maybe twice.
