CIBIL Score Myths: What Really Matters for Loan Approval

The financial organisations in India make their lending decisions largely based on the creditworthiness of the loan applicants. As a loan applicant, if the lender sees you as a highly creditworthy borrower, you may be placed in a better spot to get the loan approved faster. In contrast, if the financial organisation sees you as a low creditworthy borrower, then even if you have a high income but a low credit score, your loan application may get rejected. 

In general, financial organisations judge the creditworthiness of potential borrowers based on their credit score. Credit Information Bureau India Limited (CIBIL) is one of the leading credit bureaus in the country, and they assign a credit score to all individuals based on their credit behaviour, repayment history, credit utilisation ratio, etc. The credit score assigned by CIBIL is called the CIBIL score. 

The CIBIL score is essentially a three-digit number ranging from 300 to 900. The higher the score, the higher the creditworthiness of the individual and vice-versa. While this score plays a critical role in loan application, as a borrower, you must be aware of certain misconceptions around CIBIL score and the truth behind them. 

 

In this blog, we look at some of the common CIBIL score myths. 

CIBIL score is affected by income level

A lot of people think that their CIBIL score greatly depends on their income level. However, this is far from the truth. The credit score does not have anything to do with your income level. So, if you earn a high income but have defaulted on your payments or have bad credit behaviour, your score will be low as compared to someone who has a low income but has never missed a single loan EMI (equated monthly instalment) payment. 

 

A low CIBIL score means getting a loan rejection

This is another common myth about the CIBIL score. So, if you think having a high CIBIL score for loan approval is mandatory, you have got it all wrong. Although credit score is one of the critical factors that financial organisations consider when determining eligibility, it is not the only factor. 

Lenders consider the CIBIL score to assess your creditworthiness. But, at the same time, they also consider other factors like your current financial standing, income level, employment stability, age, etc., before deciding to extend the loan. 

So, even if your CIBIL score is low, you may still get the loan approved, albeit at a higher interest rate. 

 

Checking the CIBIL score regularly lowers the score

As an individual, you may do a CIBIL score check for different purposes, like to ensure that you meet the lender’s minimum credit score requirement before applying for a loan or just as a usual financial practice. However, many people believe that regular checking of their credit score will lower their score. Fortunately, this is only a myth. 

When you check your CIBIL score, the credit bureau counts it as a soft enquiry, and it has no impact on your score. So you can check your credit score multiple times. However, when a financial organisation initiates a check on your CIBIL score, it is counted as a hard inquiry, and multiple inquiries within a short period would reflect your credit-hungry behaviour, and your score would take a dip. 

 

A high credit score means you can get the loan at a lower interest rate

The financial organisations make their decision to extend the loan to potential borrowers based on a variety of factors, like income level, credit history, type of asset mortgaged, and age, and only based on their high credit score. 

So, a high credit score is not a guaranteed ticket to securing the loan, nor does it imply that you can get the loan at a lower interest rate. If the lender is not satisfied with any of the parameters mentioned above, your loan application may get rejected, or they may offer the loan at a higher interest rate. 

 

Applying for a new credit is bad for the CIBIL score

When you apply for any kind of credit, it has zero impact on your CIBIL score, provided you avoid applying for multiple loans within a short period or approach different lenders at the same time. 

Every time you submit a loan application to the lender, they will verify your credit history and do a hard check with the credit bureaus. Multiple inquiries may reflect your financial desperation, and it will result in a lowering of your CIBIL score. 

So, it is advisable that you first do a thorough check of the eligibility requirements of different lenders and apply for the loan with only a reputed NBFC (non-banking financial company) like India Shelter that has simple eligibility criteria. This will improve your chances of getting the loan sanctioned faster, and you can get quick access to funds. 

 

Conclusion

Having a clear understanding of the myths about CIBIL score and the actual reality is critical for effectively managing your finances. The CIBIL score is more than just a number; it signifies your financial credibility. 

It is important to understand that getting a loan is not just about maintaining a high CIBIL score; it is also about how you approach the whole process and manage the repayment. If you are looking to apply for a home loan, LAP, or home renovation loan, you can apply for it with India Shelter. They offer loans to applicants with a credit score of (-1).