Many people check their credit score before applying for a loan or a credit card. However, terms like "CIBIL score" and "credit score" often cause confusion. Are they the same thing, or is there a difference?
Understanding these terms can help you make better financial decisions.
What is a credit score?
A credit score is a three-digit number that reflects how you have managed the money you borrowed. When you apply for a loan or a credit card, banks and financial institutions use it to assess your creditworthiness.
Your score can be influenced by factors such as your loan repayment history, outstanding debt, credit utilisation, the length of your credit history, and the types of credit you have availed.
A strong credit profile can improve your chances of obtaining a loan, although loan approval also depends on your income, existing liabilities, and the policies of the lending institution.
What is a CIBIL score?
CIBIL is one of the credit information companies in India. Its full name is TransUnion CIBIL.
A CIBIL score is a credit score generated by TransUnion CIBIL based on the information contained in your credit report. In India, this score typically ranges from 300 to 900.
Lenders generally consider a score closer to 900 to be better. However, there is no specific score that can guarantee loan approval.
Other credit information companies in India also issue credit scores; therefore, your score may vary depending on the bureau and the information they hold.
What factors can cause your credit score to drop? Certain financial habits can impact your credit profile:
- Delaying loan or credit card payments.
- Utilizing a large portion of your available credit limit.
- Applying for multiple loans or credit cards within a short period.
- Having errors or outdated information in your credit report.
Even if you make your loan payments regularly, incorrect information in your report can still affect your score. This is why it is important to check your credit report.
How can you improve your credit score?
Pay your EMIs and credit card bills on time. Avoid using your entire credit limit, apply for new credit only when necessary, and check your credit report periodically.
If you find an incorrect entry, file a complaint with the relevant credit bureau and the lender.
