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Importance of maintaining CIBIL score to avail the loan


CIBIL score holds great importance for any individual planning to avail of loan from any financial institution. CIBIL stands for Credit Information Bureau (India) Limited. It maintains credit history and tracks the financial behavior of an individual. The score assigned to each person represents his/her creditworthiness to borrow a loan in the future.

For financial institutions, good credit score and credit history of the prospective borrower play a pivotal role in taking the decision to lend the loan. The bank also relies on the score to decide upon the rate of interest to assign against the borrower.

Usually, the credit score is generated based on an individual’s financial behavior with a bank over any loan or debt settlement. This financial behavior includes credit card payment records, dues and other kinds of debts. The credit score varies according to the information provided by the bank about the financial record of the borrower. And in order to maintain a good credit history, the borrower must comply with the payment procedures as directed by the loan grantor.

Often borrowers are highly enthusiastic at the time of applying or receiving the loan. However, they become inconsistent and usually falter in a time of repaying the installment.

The bank usually provides the borrower time and occasional reminder to make the payment, following an irregular history of debt clearance. However, if the borrower still fails to adhere to their requests, the bank issues notice (sometimes even legal notice) with the option of a one-time settlement (OTS) scheme. Although this might appear as an option for the borrower to do away with the loan for once and all. However, reaching this stage itself reflects the borrower’s poor financial history and behavior. And creates a great impact on his CIBIL score and future financial decisions (pertaining to the loan).

Generally, an individual assumes if he makes payment through OTS, he is safe and has come out of financial constraint. And he can avail of another loan. However, it is unlikely to happen if the CIBIL score is below the margin and fails to meet the prospective bank’s expectations. The bank usually verifies an individual’s financial history and CIBIL score before sanctioning a loan. And if the score doesn’t meet the expected level, then the bank denies approving the loan.

CIBIL scores are usually classified into three categories - score less than 600, score 600 to 750 and score more than 750. One who scores less than 600 is considered “not good” to get loan sanction. One who scores between 600 to750 is considered “moderate” for the sanction of loan. And if someone’s score is more than 750 then the financial institution understands that the borrower is worthy of getting a loan and repayment is assured.

It is now mandatory for an individual to maintain a good credit history to get the loan sanctioned from the banks or financial institutions. Individuals can maintain an excellent credit history by being prompt in paying their EMIs to the lender.