How are CIBIL Score and Loan Approval Interconnected?

Azaiza and Simi are friends. They both shared dreams of owning their own homes. However, when it came to applying for a home loan, they faced different fates, all thanks to a mysterious three-digit number—the CIBIL score.

What is CIBIL score?

The CIBIL score, or Credit Information Bureau (India) Limited score, is like a financial report card for individuals. It ranges from 300 to 900, and the higher the score, the better your chances of loan approval. Azaiza, with a stellar CIBIL score of 800, found herself welcomed with open arms by banks. Simi, on the other hand, had a score of 600, and her loan applications seemed to hit a brick wall

So, what’s the connection between CIBIL score and loan approval?

It is simple, lenders use the CIBIL score as a quick and reliable measure of an individual’s creditworthiness. A high score suggests responsible financial behavior, making banks more willing to trust you with their money. Simi’s lower score raised concerns about her ability to repay the loan, making banks hesitant to take the risk. The question may arise as how to check free CIBIL score? Simple, visit the CIBIL website and input your details to check your free score. Note that only one free report is provided every year.

Now, let’s dive into the secrets of improving your CIBIL score, just like Azaiza did.

Reduce credit card balances

Unlike Simi, who carried balances on her credit cards, Azaiza adopted a financially prudent approach. She made it a habit to pay off her entire credit card balances each month. This not only showcased her financial responsibility but also prevented the accumulation of interest, portraying her as a low-risk borrower to credit agencies.

Pay your bills on time

Azaiza understood the significance of timely bill payments. By consistently settling her bills before the due date, she not only avoided pesky late fees but also scored positive points on her credit report. This demonstrated to lenders that she was a responsible borrower who could be trusted to meet her financial obligations promptly.

Check for errors in your credit report

Regularly reviewing her credit report became a habit for Azaiza. This diligence allowed her to identify and rectify any inaccuracies promptly. By ensuring that her credit report accurately reflected her financial history, she maintained a trustworthy credit profile, positively influencing her creditworthiness.

Avoid multiple loan applications

Azaiza was strategic in her approach to loan applications. Recognising that each application is recorded in her credit report, she only applied for loans when absolutely necessary. This approach minimised the impact on her credit score, signaling to lenders that she wasn’t desperate for credit and was mindful of her financial decisions.

Mix your credit types

Azaiza understood the importance of a diverse credit portfolio. By having a mix of credit types—credit cards, personal loans, and a mortgage—she demonstrated versatility in managing different forms of credit. This diversity contributed positively to her credit score, reflecting a balanced and responsible approach to borrowing.

Negotiate with creditors

During challenging financial times, Azaiza took a proactive approach. She reached out to creditors to discuss and negotiate payment plans. This not only demonstrated her commitment to fulfilling her obligations but also, at times, led to the removal of negative remarks from her credit report, showcasing a willingness to work towards financial solutions.

Don’t close old credit accounts

Azaiza recognised the value of a long credit history. Instead of closing old credit accounts, she kept them open. This decision showcased her stability and consistency in managing credit over an extended period, contributing positively to her creditworthiness.

Settle outstanding debts

Azaiza prioritised settling any outstanding debts she had. By doing so, she not only improved her credit score but also reduced the financial stress associated with lingering financial obligations. This responsible approach reinforced her credibility in the eyes of lenders.

Create a budget

Both Azaiza and Simi recognised the power of budgeting. By creating realistic budgets, they effectively managed their finances. This disciplined approach helped them avoid overspending, contributing to the maintenance of a positive credit history.

Use credit wisely

Learning from Azaiza, Simi realised the importance of responsible credit usage. Azaiza’s example taught Simi to borrow only what was necessary and to avoid maxing out credit limits, ensuring that credit utilisation remained within reasonable and manageable levels.

Be cautious with co-signing

Azaiza approached co-signing with caution, understanding the potential risks involved. She only agreed to co-sign when absolutely necessary, safeguarding her own creditworthiness while still offering support to those in need.

Settle past due accounts

Azaiza advised Simi wisely when she had past due accounts. By settling these accounts, Simi took the first step towards rebuilding her credit. This demonstrated a commitment to rectifying past financial issues and improving her creditworthiness over time.

Regularly monitor your CIBIL score

Azaiza prioritised awareness of her credit standing. Subscribing to regular CIBIL score updates allowed her to stay informed about any changes in her credit report. This proactive approach enabled her to address issues promptly, preventing potential negative impacts on her creditworthiness.

Use credit monitoring services

Azaiza took advantage of credit monitoring services. These services provided timely alerts about changes in her credit report, empowering her to take quick and informed action when necessary. This proactive stance contributed to maintaining a healthy credit profile.

Diversify your income sources

Azaiza recognised the importance of having diverse streams of income. While not directly impacting the CIBIL score, a stable and diversified income can contribute to financial stability. Azaiza explored additional income sources, ensuring a more robust financial foundation. This approach not only helped in meeting financial obligations but also showcased her ability to manage income effectively, indirectly influencing her creditworthiness positively. Lenders often appreciate borrowers with stable and diversified income sources as it indicates a lower risk of default.

Be patient

Azaiza understood that the journey to improving a credit score takes time. Her patience and persistence in following these steps were crucial. This lesson emphasised the importance of consistently making sound financial decisions and waiting for the positive impacts on her creditworthiness to unfold gradually.

In the end, Azaiza and Simi both achieved their dreams of homeownership. Azaiza’s good credit score opened doors, while Simi, inspired by her friend, diligently worked to improve her score over time. The moral of the story: Your CIBIL score is not just a number; it’s the key to unlocking your financial dreams.

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