A topic that often perplexes many individuals is the difference between CIBIL Score and Credit Score. These two terms are frequently used interchangeably, leading to confusion among borrowers and lenders alike. But fear not, by the end of this article, you will be equipped with a clear, comprehensive understanding of what sets them apart and how they influence your financial journey.
Understanding the basics
Before we delve into the distinctions, let us establish some groundwork. Both CIBIL Score and credit score are numerical representations of an individual's creditworthiness, serving as a crucial tool for lenders to assess the risk of lending money to a borrower. A higher score indicates a lower risk, making you more eligible for favourable loan terms and lower interest rates.
CIBIL Score: The Credit Information Bureau (India) Limited (CIBIL) is the oldest and most well-known credit bureau in India. A CIBIL Score is a three-digit number ranging from 300 to 900, with 900 being the highest possible score. This score is based on your credit history, including credit cards, loans, repayment behaviour, and any defaults or late payments.
Credit score: On the other hand, a credit score is a generic term used to refer to credit scores generated by credit bureaus, such as Equifax and Experian, in addition to TransUnion CIBIL. These bureaus utilise their proprietary algorithms and data to calculate your creditworthiness, resulting in different scores than CIBIL.
Key differences
The primary difference between a CIBIL Score and a credit score lies in the credit bureaus that produce them and the methodologies used for calculations. While they essentially represent the same concept, the specific numerical values may vary slightly due to variations in data sources and scoring models.
Another difference to note is that lenders may prefer one credit bureau over the other based on their historical relationship and trust in a particular bureau's data. Therefore, it is beneficial to be aware of both your CIBIL Score and credit scores from another credit bureau to improve your chances of loan approval across various lenders.
Improving your scores
Now that we understand the disparities between CIBIL Scores and credit scores, let us talk about enhancing these scores to secure better financial opportunities. Regardless of which bureau's score you are aiming to improve, the following tips apply to both:
Timely payments: Ensure you pay your credit card bills and loan EMIs on time. Late payments can significantly impact your scores negatively.
Credit utilisation: Keep your credit card balances low and maintain a healthy credit utilisation ratio. Aim to utilise only about 30% of your credit limit to demonstrate responsible credit behaviour.
Credit mix: A diverse credit mix, including a mix of secured and unsecured loans, can positively influence your scores. However, avoid taking on unnecessary debt.
While they might seem confusing at first, a clear understanding of these scores is crucial to navigate the world of credit and loans successfully. An excellent way to work on improving your CIBIL Score is the Bajaj Finserv Credit Pass. This innovative CIBIL-powered offering helps you build a good credit score by providing a complete overview of all your credit accounts and the factors that impact your credit health, apart from monthly CIBIL Score updates and interactive tools that you can use wisely to build a stronger credit profile.
Remember, maintaining a healthy credit score is an ongoing process that requires discipline and financial prudence. So, stay informed, practise responsible credit habits, and watch your financial goals take flight!
