What is CIBIL score
CIBIL Score is a three-digit numeric summary of your credit history. The score is derived using the credit history found in the CIBIL Report (also known as CIR i.e Credit Information Report).
A CIR is an individual’s credit payment history across loan types and credit institutions over a period of time. A CIR does not contain details of your savings, investments or fixed deposits.
CIBIL Score range
| Score Band | Category |
|---|---|
| < 300 | Poor Credit Score |
| 300-550 | Very Low Credit Score |
| 551-620 | Low Credit Score |
| 621-700 | Fair Credit Score |
| 701-749 | Good Credit Score |
| 750-900 | Excellent Credit Score |
Why you should keep a healthy CIBIL score
Everyone will need a loan from a financial institution at some point in their life for high value purchases / spends which may include the following –
- Home Loan
- Education Loan
A good CIBIL score will help you get your loan approvals very quickly without any hassles.
Disadvantages of a poor CIBIL score
If you have a CIBIL score which is less than 700 , you may find delays in your loan approvals and may end up with additional paper work and end up paying more. Some additional costs that you may incur –
- For additional paper work, you may have to approach a CA who may charge you 2-4% of the loan amount.
- Banks may charge additional processing fees of up to 0.5%
- Banks may charge additional interest of 0.5 – 1 %
Let’s see if you have to pay these additional cost at the lower end, how much you may need to shell out from your pocket.
| Additional cost category | Appx cost for a 20 year loan of 50 lacs |
|---|---|
| Additional paper work by CA @ 2% | 1,00,000 |
| Additional processing fees by banks @ 0.5% | 50,000 |
| Additional interest by banks @ 0.5% for a 20 year loan at 8.75% | ~ 1,500 per month |
| Overall Additional Costs | 8~10 % more for your entire loan term |
Why banks will charge more
Banks lend based on risk profile of a customer. If the risk is more, banks will charge more.
It’s that simple.
For a customer with poor risk profile, probability of default is more.
Who will be happy if you have a bad CIBIL score
- CA’s – They get additional money for paper work
- Banks – They charge you additional processing fee and additional interest rate