A CIBIL score has become one of the most important factors in your financial journey, which can influence the credit decisions across India. The CIBIL score is the most important thing that lenders check when assessing any person’s application for a loan or credit card. Since the Reserve Bank of India (RBI) has made some changes to the guidelines that CIBIL scores are based upon, it becomes important to know all about these updates and how they would affect you as borrower.
How New Rule of CIBIL Score in RBI Works: Everything You Need to Know.
Recently, the RBIl issued several changes that have made them more transparent and given lower credit score borrowers more flexibility. Although CIBIL score (compiled by Credit Information Bureau (India) Limited) is just a numeric figure, which indicates an individuals creditworthiness but the new rules ensure that lenders have made out fair assessments about borrowers with lower-credit scores.
Emphasizing on Quality of Credit Report: The revised RBI guidelines lay emphasis on the quality of credit reports. Lenders are now likely to assess borrowers’ creditworthiness not just on the basis of CIBIL score, but also by having a deep understanding of their credit behaviour. This enables a more comprehensive picture of a borrower’s financial situation to be built, moving beyond solely relying on the score.
Flexibility in Loan Approval for Low CIBIL Scores: The new rule provides more flexibility to the bank in relation to the loan under which loans can be approved even with a low CIBIL score. In the past, any score under 700 almost guaranteed a rejection of the loan. Under the new rules, lenders can take a more qualitative approach to assessing the borrower’s repayment history and so on.
Focus on Better Credit Score Transparency: The RBI has also highlighted that the frequency of credit report updates must be increased so as to provide a clear view of borrower’s financial position. This minimizes variance and makes sure that a CIBIL score is representative to recent changes in a borrower’s credit behavior.
What If the CIBIL Score is Below 700?
Most financial institutions perceive a CIBIL score of 700 or higher to be the ideal scenario. Now, this doesn’t mean that if your CIBIL score is less than 700, you will never be able to escape rejection. A score near or below 700 could be a sign of missed payments in the past, or simply having not paid off debt for some time. But it is worth getting to know what these lower scores can mean and how to counteract them.
Higher Loan Rejection Rate: It is possible that you may get rejected for a loan if your CIBIL score is less than 700, especially in the case of major national banks. Scores fall in the “average” range from 650 to 700, so banks and lenders may approve loans but at a higher interest rate or with collateral requirements.
Increased Interest Rates: They are generally at risk with a lower CIBIL score, which leads to an increase in interest rates. This could cause them to charge higher rates when giving out loans. A borrower with a 600 or lower CIBIL score may be quoted interest rates that are vastly higher than those offered to someone with a score of over 750.
Hard To Avail Credit Cards: A bad CIBIL score can lead to declining of credit card by the bank just like loans. If your score is too low, financial institutions may refuse your application or suggest credit cards with a very low limit or higher fees.
Long-term Effect on Future Loan: A poor CIBIL score could lead to you missing out on terms for your future loans over the long run. You will remain a higher-risk borrower the lenders see because of which you will have limited access to cheap financing options.
What Can Be Done to Improve a CIBIL Score Below 700?
If you fall short, don’t despair of a CIBIL score. Here are some of the things you can do to look better to lenders and improve your chances of being approved for a loan:
Pay Bills on Time: Credit Score will boost right time payment of bills like credit card, utility bill & loans.
Lower Your Credit Card Utilization: You must maintain a low balance on your card in relation to the credit limit, since a higher rate of credit utilization will decrease your score.
Pay Off: Pay off any loans or overdue payments. Paying everything helps on your credit potential.
Keep an Eye on Your Credit Report: Regularly check your CIBIL report for inaccuracies. Inconsistencies can negatively impact your score and slow down loan approval.
What is the Latest Update On New CIBIL Score?
To enhance credit reporting and put more control in the hands of consumers, there are multiple measures that have been introduced with this new CIBIL score update. Here’s what you need to know:
Digital Credit gets RBI Attention: As the popularity of digital loans and fintech lenders grows, so too does demand for the same CIBIL score used to generate bank reports. The central bank has now made it mandatory for digital credit providers to adhere to these practices. As the CIBIL scores from these digital lenders too have to be reported periodically, consumers will now have a better way of keep track with their credit health.
Advocacy: The RBI has also called for greater awareness around credit scores. Further steps are being taken to raise the awareness of the consumer on how to maintain and enhance their CIBIL score.
Frequent Updates: The CIBIL score is updated more frequently now and thus an individual can view his credit status in real-time. This helps in providing them a more realistic picture of their credit score and aids the lenders to take better decisions regarding issuing loans.
Statistics and Facts to Prove the Significance of CIBIL Score
90% of Lenders Use CIBIL Score According to the CIBIL report, approximately 90% of Indian banks and financial institutions consider credit scores while sanctioning a loan or credit card.
Average CIBIL Score in India: The average CIBIL score in India is approximately 650. According to recent statistics, nearly 80% of the people have a score below 700 on CIBIL.
Effect of CIBIL Score: People having a score of 750 and above should qualify for low interest rates when taking loans, which can save huge money over time.
Conclusion RBI New Guidelines 2024
The lending scenario in India is changing with the new guidelines from RBI on CIBIL scores. Although an individual with a CIBIL score under 700 may face some challenges, new guidelines will allow for much greater flexibility, putting borrowers in a far better position to take out loans and raise their credit ratings. By familiarizing yourself with the changes and taking proactive measures to improve your creditworthiness, you can set yourself up for a brighter financial horizon.
Bear in mind that your CIBIL score is not only a number, but also an image of your financial life and choices. Control it, and you’ll unlock a variety of positive financial possibilities.