Banks Are Raising Lending Rates: Why Your CIBIL Score Matters More Than Ever | India Business News

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NEW DELHI: Several public and private sector banks raised their interest rates on home and car loans from June 1 after the Reserve Bank of India (RBI) raised India’s repo rate by 40 le last month. When the repo rate is high, the cost of funds is higher for banks, leading to higher interest rates for home, auto and personal loans. But did you know that if your credit score is high, you can get the lowest possible interest rate from the banks?
Your CIBIL score tells the bank how well you can manage your credit as well as your ability to take out and repay loans.
How and what affects credit scores?
Credit score is a 3-digit number that determines one’s ability to repay credit on time, in other words it is proof of one’s creditworthiness. “Although the credit score is assigned over 900, any score above 750 is considered a healthy score. Any score below 720 is considered a low score and may restrict your ability to acquire credit. There is no no single characteristic that determines how good or bad an individual’s score is, but a list of factors cumulatively affect an individual’s credit score,” said Anurag Sinha, Co-Founder & CEO, OneScore & OneCard, a veteran in the field of consumer credit.
These include past credit repayments, credit usage, number of difficult inquiries, credit mix, any settled loan, which still shows as active, despite being paid, irregular contact details among many accounts, a timely credit repayment history, fewer loans used, having a healthy mix of different credit products, and keeping credit card bills under control.
Therefore, the CIBIL score is calculated by the TransUnion CIBL credit bureau after considering your past payments, credit history, current and former credit accounts, among others.
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 rates on loan interest rates to people who have a high credit score.
According to BankBazaar, the interest rate on a home loan or auto 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 a high CIBIL score and higher interest rates for people with a low or poor CIBIL score. Therefore, it is important to establish a good credit profile and monitor your CIBIL score from time to time.
For example, the State Bank of India offers interest rates based on the CIBIL score. Regular SBI home loans have an interest rate of 7.05% for credit scores of 800 or higher. The interest rate is 7.35% for credit scores of 650-699 and 7, 55% for credit scores 550-649. The interest rate is 7.25% with an NTC/non-CIBIL score.
Housing Development Finance Corp also raised its retail prime rate (RPLR) by 5 basis points (bps), its third increase in a month. The latest increase means that the minimum rate for a borrower with a credit score over 780 is now 7.05%. borrowers below a credit score of 780 will have to pay a minimum of 7.15% for loans up to 30 lakh and 7.40% for loans between 30 lakh and 75 lakh.
“A good credit score helps you get the best loans and credit card offers based on your eligibility. Every lender you apply for a loan or credit card from will verify this and base your offer on your credit score. Your credit score is contained in your credit report, which contains a summary of your history, which will show whether you have paid your debts in full and on time.You enjoy several benefits of a good credit score, and a lower interest rate is one of them.Almost all lenders consider a credit score of 750 and above as ideal.They offer lower interest rates to applicants with high credit scores because these borrowers are less risky and less likely to default. With a high credit score, you can negotiate lower interest rates and request to waive some of the additional fees,” said D Adhil Shetty, CEO of Bankbazaar.com.
More importantly, banks check your CIBIL score to analyze whether you have ever failed in your financial journey in the past, as would have been recorded on your CIBIL report. Thus, if your CIBIL score is good, the lender will not hesitate before granting a loan. But a bad CIBIL score can lead to loan rejection because the lender is unsure of your creditworthiness.
A good CIBIL score will also ensure that you get a home loan without any hassle and the same goes for enjoying rental accommodation.
A good or high CIBIL score will also ensure you get bank approval for higher limits.
How can you improve your credit rating?
“Timely repayment of EMIs, paying more than the minimum due on credit card bills can help improve your credit score,” said Sinha of OneScore.
You should only use 15-30% of your credit card limit. Using your credit limit to the maximum suggests that you are credit hungry and unable to manage your finances.
Another trick, according to BankBazaar, is to ask your bank to increase the credit limit on your credit card. Once the credit limit is increased, you need to keep credit usage low. It will suggest that you are not greedy for credit and you are able to handle credit.
A long credit history will help you improve your CIBIL score. So if you have old credit cards with a good credit history, you better not close them. When you close your credit cards, you lose a good credit history and it can hurt your CIBIL score.
Correct errors in your CIBIL report (if any): If you have noticed a sudden decrease in your CIBIL score, you should check your credit report as it may contain errors.
“Regular credit score monitoring, avoiding sharing personal information on online platforms, unverified apps, and reporting any errors immediately can help protect your credit health from identity theft,” Sinha said.
How to get credit scores rectified and the long term implications of the same on the score?
When someone finds an error in their credit report, the first step is to file an online complaint with the credit bureau to dispute the error. Once the form is submitted, the credit bureau approaches the bank to check for errors as they cannot resolve the errors on their own.
Mail confirmation from bank, office and bank offer formal resolution to the discrepancy within 45 days of complaint. The user is then informed of the error in the revised score. If the discrepancies are not identified in time, it might cause the credit score to drop and the users should opt for a secure product to repair their credit score. It will take its own time,” Sinha explained.
How to check your CIBIL score:
Go to the official CIBIL website https://www.cibil.com
Select “Get your CIBIL score
Click on “Click here” to get your free annual CIBIL score
Enter your name, email ID and password. Attach ID (passport number, PAN card, Aadhaar or voter card). Then enter your PIN code, your date of birth, as well as your telephone number
Click on ‘Accept and continue’
You will receive an OTP on your mobile number. Type the OTP and select “Continue”
Select “Go to Dashboard” and check your credit score
You will be redirected to myscore.cibil.com
Click on ‘Member Login’ to see your CIBIL score.
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