CIBIL Score: In today’s time, while taking any type of loan, the bank first checks your CIBIL score. It is a three-digit number that reflects your financial credibility and ranges between 300 to 900. If your CIBIL score is good then you can easily get a loan at a low interest rate. On the other hand, if your score is bad then the bank can immediately reject your loan application. CIBIL score not only plays an important role in loan approval but it also affects your interest rates.
A bad CIBIL score means that you have not paid your loans on time in the past or there has been some problem in your financial activities. This makes the banks lose trust in you and they consider you a risky customer. That is why maintaining a good CIBIL score has become extremely important in today’s time.
What is minus CIBIL score
Many people face a strange situation called minus or zero CIBIL score. This happens when a person has never taken any loan from a bank or used a credit card in his life. Such people do not have any credit history so the CIBIL bureau has no record of them. This situation is common with people who always transact in cash and never take loans from the banking system.
A minus CIBIL score does not mean that you have a bad score but it means that you have no credit record at all. This situation can be even more problematic than a bad CIBIL score because banks have no basis for your financial credibility. This is also called credit invisibility where a person is invisible to financial institutions.
Disadvantages of Minus CIBIL Score
A big problem that banks face when you have a negative CIBIL score is how to check your credibility. When you do not have any credit history, the bank cannot know whether you will repay the loan on time or not. This creates confusion on the part of the banks and they hesitate to give you a loan. Sometimes banks refuse outright because they do not have any proof of your repayment capacity.
A negative CIBIL score not only causes problems in getting a loan but the interest rates may also be high. Banks charge higher interest for the risk when they have doubts about the customer’s repayment capacity. Apart from this, it also becomes difficult to get a credit card and even if you get it, it is with a low limit. You may be deprived of many financial services due to which you cannot take full advantage of modern banking.
Chances of getting a loan with a minus score
It is not necessary that you will not get a loan at all if you have a negative CIBIL score. In such a situation, banks test your credibility through other parameters. Your source of income, job stability, educational qualification and professional background are looked at. If you are a doctor, engineer, chartered accountant or in any other reputed profession, you can get a loan even if you do not have a credit history. Such professionals have a stable and good income, so banks trust them.
If you do not have any special professional qualification, you can submit bank statements of a few years to show your better financial condition. Proof of regular income, electricity, water and telephone bills that you have been paying on time can also help in increasing your credibility. Sometimes loans can also be taken by providing guarantor or collateral security. However, in this case you may have to pay a slightly higher interest rate.
Building a score through credit cards
The easiest way to build and improve your CIBIL score is to get a credit card. If you do not have a CIBIL score, you can first apply for a secured credit card for which you have to keep some amount as fixed deposit. Use this card regularly but pay the entire bill on time at the end of the month. Use only up to 30 percent of the limit and never depend on the minimum payment.
By using the credit card properly, your CIBIL score will start building up in two to three months. After this, after six months to one year of regular payment, your score can reach around 700. It is very important to make timely payment after making a purchase with a credit card. Late payment not only incurs late fees but can also spoil your CIBIL score.
Fixed Deposit and Overdraft Strategy
Another effective way to build a CIBIL score is to avail overdraft facility through fixed deposits. For this, you can make two small fixed deposits of Rs 10,000 each in the bank. After opening the FD, apply for overdraft facility against it. Usually, banks provide overdraft facility of up to 80 to 90 percent of the FD. As soon as you use this facility, your credit record will start building.
Withdraw some amount using the overdraft facility and then repay it quickly. Repeating this process a few times will start recording your credit behavior. This will start building your CIBIL score and it will be updated in two to three months. This method is better for those who do not want to take a credit card or who are not able to get a credit card.
Regular monitoring and corrective measures
Once the CIBIL score is generated, it is important to monitor it regularly. Check your CIBIL report every three months and see if any incorrect information is recorded. If any error is seen, immediately inform the CIBIL bureau and get it corrected. Pay all your debts on time, whether it is a credit card bill or EMI. Keep the credit utilization ratio below 30 percent.
If you have multiple credit cards, do not close them all at once as this will reduce your credit history. Keep old credit cards active as a long credit history improves the score. Do not apply for credit at multiple places at once as this increases hard inquiries and negatively impacts the score.
Conclusion and future plans
CIBIL score is an important tool for financial freedom in today’s time. Having a minus or zero CIBIL score is not a big problem provided you take steps to improve it in the right way. You can easily build your score through credit card or overdraft facility. Once you have a good score, it is most important to maintain it. Be patient as it takes time to build a CIBIL score but once built, it helps a lot in meeting your financial needs.
Disclaimer
The information given in this article is for educational purposes only. Consult a qualified financial advisor before making any financial decisions. Improving CIBIL score is a slow process and requires patience and regular payments.
