How a High CIBIL Score Can Help You Secure Lower Interest Rates?
CIBIL score is an important factor that is taken into consideration by lenders at the time of offering you a loan. Having a higher CIBIL score not only makes you eligible to avail a loan but also helps you in getting a lower rate of interest.
A CIBIL score is a numerical representation of your ability to repay the credit. It is computed by TransUnion CIBL credit bureau after considering your past payments, credit history, current and old credit accounts, among others. An interest rate is one of the most important factors a borrower considers while availing a loan.
A CIBIL score falls in the range of 300-900. Majority of lenders consider a CIBIL score of 750 and above as ideal. If you want to have easier access to credit, your CIBIL score should be closer to 900. Lenders like banks and non-banking finance companies (NBFCs) prefer giving loans to people who have a high credit score as they have a lesser probability of turning a defaulter.
Benefits of a high CIBIL score
A higher CIBIL score will put you in a position to negotiate with lenders to get a lower interest rate on the loan. There are several lenders who offer preferential pricing on loan interest rates to people who have a high credit score.
How is the interest rate for your loan decided?
The interest rate on a home loan or a car loan varies from bank to bank, however, if you have a high CIBIL score, you can get a discount on the interest rate. If you have a CIBIL score of 750 and above, banks will offer you loans at a competitive interest rate. Banks charge cheaper interest rates for consumers with high CIBIL score and higher interest rates for people with a low or poor CIBIL score. Therefore, it is important to build a good credit profile and monitor your CIBIL score from time-to-time.
How to improve your CIBIL score?
If you decide to take a loan, you should check your CIBIL report as it will give you an idea where you stand. A CIBIL report is a detailed summary of your current and past credit accounts. Reviewing your CIBIL report from time-to-time will give you an idea of where you are going wrong. You can work on those areas and improve your CIBIL score.
Here are few simple measures that will help you improve your CIBIL score.
- Fix your late payments:The biggest factor that affects your CIBIL score is late payments. You should pay all your credit card bill and EMIs on time and avoid delays.
- Maintain a low credit exposure:According to experts, you should use only 15-30% of your credit card limit. Using your credit limit to the fullest suggests that you are credit hungry and are not able to handle your finances.
- Fix errors in your CIBIL report (if any):If you have seen a sudden decrease in your CIBIL score, you should check your credit report as it could have errors. Fixing errors in your CIBIL report at the earliest will help you improve your CIBIL score.
- Increase credit limit on your credit card:One of the fastest ways to increase your CIBIL score is to request your bank to increase the credit limit on your credit card. Once the credit limit is increased, you should keep the credit utilisation low. This will suggest that you are not credit hungry and are able to handle the credit.
- A balance of mix credit:If you have a good balance of secured and unsecured credit, it will help you boost your CIBIL score. It is better to have one or two credit cards which is an unsecured loan. At the same time, having a car loan will be helpful as it is a secured loan.
- Avoid multiple credit inquiries:Making several multiple credit inquiries at the same time can affect your CIBIL score. It is advised to spread out your inquiries over a period of time. Inquiring about credit at the same time can trigger hard inquiries which can have a negative impact on your CIBIL score.
- Don't close old credit accounts:A long credit history will help you improve your CIBIL score. Therefore, if you have old credit cards with a good credit history, it is better to not close them. When you close your credit cards, you lose out on good credit history and that can hamper your CIBIL score. It is advised to keep your credit cards active as long as it is possible to maintain a healthy CIBIL score.
Final Thoughts
It must be noted that, if you don't have a CIBIL score close to 750, you should wait for some time before applying for a loan. You can postpone your decision to avail a loan and work on your CIBIL score in order to bring it closer to 900. You should pay off all your pending debts and make sure there are no unpaid dues. Having a clean credit report without late payments or defaults works wonders for your CIBIL score. Late payments stay on your credit report for a period of 7 years, however, the impact of the same fades overtime.
Also, once you are ready to apply for a loan, make sure to do your research and browse for the best deals by checking with different banks.
Read More on CIBIL
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FAQs on Having a High CIBIL Score Can Get You a Lower Rate of Interest
- Can you get a lower interest rate with a high credit score?
Every Non-Banking Financial Company (NBFC) or bank provides different interest rates for various types of loans. Having said that, there is no particular credit score needed to avail loans at a lower rate of interest. However, if your CIBIL is 750 or above and close to 900, then you might get loans at lower interest rates. Apart from this, many lenders provide credit facilities at low interest rates.
- How do I lower my loan interest rate?
Banks and NBFCs consider various factors while determining the rate of interest on your loan. Firstly, your lender will check your credit score to find your creditworthiness. Secondly, the lender will also check your repayment history to determine the interest rate of your loan. Apart from this the lender will also analyse the borrower’s repayment capacity.
- What interest rate can I get with a 750 credit score?
If your credit score is 750, the interest rate on your loan will be lower. However, it varies from bank to bank.
- Who can reduce the interest rate?
Bank or NBFCs reduce the interest rates on your loan.
- Can I ask my bank for a lower interest rate on a personal loan?
If you negotiate with the bank or NBFC on the basis of your credit score as well as financial background, you can avail a loan with a lower interest rate.
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