Know The Importance of CIBIL Score and CIBIL Score Range

Importance of CIBIL Score

Importance of CIBIL Score

In 2023, a good credit score is as important as having a cup of coffee in the morning. A good CIBIL score range will get you an instant personal loan with a low interest rate. Learn how to analyse the anatomy of a credit score and how to maintain it through this write-up, as it carries many financial benefits. Understanding the benefits will also help to improve your credit score.

A credit score is a 300-900 range/scale that grades your financial behaviour. The score implies how likely a person will repay their loan in time. There are many ways to improve a low credit score. One such way is to avail of a personal loan through Buddy Loan. You can enhance your credit by availing an instant personal loan on the go. Buddy Loan, one of India’s biggest loan aggregators, disburses instant personal loans with enormous benefits.

Also Read: Medical Loan Credit Score Vs Foreclosure

Regularly checking your credit score is a good habit to have. Regular checks will help you to maintain your score and grow it too. You can use many online credit score-checking platforms like Buddy score to get your free report.

Everyone would like a good credit score as it is the key to unlocking many benefits. From lower interest rates to getting long-term loans, its importance is plenty.

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Importance of a Good Credit Score

A good credit score is one of the significant factors they look into before lending out a loan to check a borrower’s eligibility and creditworthiness. It will provide the trust needed for the financial institution, NBFC, or the lender himself. Banks, lenders, and other institutions prefer an average credit score of 750 or above. Good benefits are available, making way for loans with a low-interest rate and high value. Many factors influence a good credit score rating, such as on-time payments, prepayments, and one-shot payments. Being reliable and disciplined will reward you with a good credit score and easy availing of loans in the future.

Importance of a Good Credit Score

What is the Average Credit Score?

The average credit score of a country determines how conscious its citizens are with their credit and financial habits. The different credit bureaus in the country calculate a credit score through credit reports. An individual’s credit score is collected through their financial history and records. In the Financial year 2021-2022, the average credit score for Indians was recorded at 715, according to OneScore, which is a credit monitoring platform. While this is considered a good credit range, there is still a need for improvement. Having more credit-conscious individuals will be great. However, an application with a credit score of 750 and above will be eligible for a quick sanction. The interest rate will also be lower as compared to other ranges.

There are various bureaus with different models that calculate the credit scores of individuals before their loan applications get accepted. Most loan interest rates are decided on the basis of where an individual’s score lies in this credit range.

Also Read: 10 Essential Habits for a High Credit Score

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Types of Credit Score Range Models

Regularly checking your credit score will be an excellent way to maintain it and stay ahead of your financial situation. There are many different kinds of credit score models given by various institutions that you can check. Each institution will provide different types of credit score scales depending on the information given to them. Most people frequently use two main credit score models, such as the FICO and Vantage score model, which includes Equifax and Experian. The CIBIL score range is another model that borrowers widely use to check their credit scores for personal loans.

FICO Credit Score Range

The FICO credit score model was first developed in 1989. FICO is a model that top financial institutions use to decide on loan approvals. FICO offers different kinds of credit scores depending on the type of loan that was applied for. Here, the payment history is the most crucial factor determining the credit score. FICO calculates the credit score by taking 35 percent of payment history, 30 percent of amounts owed, 15 percent of the length of credit history, 10 percent of credit mix, and 10 percent of new credit.

The FICO Credit Range model:

  • 300-579 – Very poor
  • 580-669 – Fair
  • 670-739 – Good
  • 740-799 – Very good
  • 800-850 – Excellent

Also Read: Want to Achieve a Good CIBIL Score? Here are some practical tips

The VantageScore Model

The Vantage Score model is a collective model that was developed by three credit bureaus and was formed in 2006. The VantageScore model is an alternative to FICO and provides a different way of calculating the credit score using the same factors. The credit card balance and credit utilisation ratio is the determining factor for a good credit score. This model calculates the credit score by taking five factors into account. These are:

  • New accounts and age of credit history, which fall under the less influential category
  • Payment history falls under the moderately influential category.
  • Credit mix and experience fall under a highly influential category.
  • Total credit usage, balance, and available credit fall under the extremely influential category.

Also Read: CIBIL vs CRIF 8 Key Differences You Need To Know

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Credit Bureaus of India

Credit bureaus are companies that collect the credit history of borrowers and generate reports and credit scores. The reports are important to financial institutions and banks for making financial decisions on loan lending. There are four credit bureaus in India:

TransUnion Credit Information Bureau (India) Limited (CIBIL): This was established in 2000 and covered analysis for individuals and companies. CIBIL provides companies and other entities with a PERFORM score. It provides individuals with credit score ratings on the basis of a 300-900 range. According to CIBIL, the average credit score range is divided into four categories, 300-499, 500-649, 650-749, and 750-900.

Credit score: 300 – 499

A credit score of this range is considered below average and sets the creditworthiness to the opposing end of credit. It also signifies a setback faced in previous payments. A deeper study reveals that a score of 500 or less implies the stage of bankruptcy or a home foreclosed. With a credit score in this range, getting a loan approval will be more challenging.

Credit score: 500 – 649

This credit range stands below average, but it is still considered lendable. This score is considered good and bad for financial institutions, banks, NBFCs, and small lenders. It is possible to find lenders for loans or credit cards with a score in this range. However, the interest rate might be higher as the recorded history could be better.

Credit score: 650- 749

A credit score of this range is considered a good score. Good credit behaviour will be rewarded with even better credit scores. Financial institutions and lenders will accept an applicant with this score range. However, the interest rate may need to be revised.

Credit score: 750 – 900

Managing a CIBIL score range of 750-900 in the financial year 2022 is not just an average score but an excellent one. Lenders and credit card institutions will consider borrowers with this score range as highly reliable and responsible.

Equifax: This was a credit-giving company that was established in 1899 and became a licensed credit rating agency in 2010. Apart from reports and credit score ratings, it provides risk scores and portfolio scores for individuals. They provide credit fraud reports, portfolio management, risk management reports, and others. The credit range for Equifax is 300-850.

The Equifax credit score range

300-499 – Very poor

500-600 – Poor

601-660 – Fair

661-780 – Good

781-850 – Excellent

Experian: This is also a credit rating company that has been in India since 2010. It conducts an analysis of credit reports for both individuals and companies. The credit score ranges from 300-850.

The Experian credit score range

300-499 – Very poor

500-600 – Poor

601-660 – Fair

661-780 – Good

781-850 – Excellent

CRIF High Mark: This is a credit rating company that has been approved by the Reserve Bank of India. They provide credit analysis on both individuals and corporations. The credit score ratings fall between 300-900. A credit score of 300 indicates a poor credit rating, while scores of 750 and above are considered good credit scores.

Checking your credit score from different bureaus will give you different results. Therefore, checking from at least three additional bureaus is essential to get an accurate result. The result difference is because the credit bureaus receive only some of the required information simultaneously. Checking your credit score from different credit bureaus will also give you room to cross-check for any errors or incorrect information. Regularly checking your credit score will also help you to maintain it, which is essential. Below are some suggestions on how you can maintain a good credit score.

Also Read: 3 Best Solutions for Credit Report Problems

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How to Maintain a Good Credit Score Range

There are no shortcuts to improving your credit score. It is a long process of continuous borrowing and repayment that will give you a good credit score. However, there are ways by which you can follow so that you can have and maintain a good credit score range. Some of these are:

On-Time Payment:

It’s a no-brainer that on-time repayment of loans will impact your credit score in a big way. Regular and on-time payments will help to improve your credit score. When you are caught up with day-to-day activities, you may miss out on a monthly payment. This leads to many issues like fees, and it may affect your credit score. So, the best way to ensure that you do not miss out on payments is by setting a monthly reminder and being disciplined about your monthly EMI payments.

Maintain old Credit Cards:

Having a good credit history also means maintaining old credit cards. Doing so will increase your credibility as a borrower, as you will have a lengthy and strong credit history.

Choose an EMI Wisely:

When getting a loan, it is very important to choose an EMI and tenure that you are sure to be able to repay every month. Getting a shorter tenure will mean that the EMI will be higher, whereas getting a longer tenure will mean that the EMI amount will be lower and perhaps easier to pay. So, always choose the one that suits you best.

Put a Credit Limit:

How you use a credit card directly impacts your credit score. A credit score gets affected when a borrower consistently exceeds the credit limit. So, customise your credit limit to fit your expenses to avoid exceeding the limit, as it will negatively impact your credit history.

Check Credit Score Regularly:

Regularly checking your credit score will help you notice any mistakes or irregularities in your credit history. Sometimes there may be incorrect information in your credit records, as CIBIL sometimes makes mistakes while updating information. Wrong information or slow updates will lead to a lower credit rating. In case there is any incorrect information, you can simply submit a CIBIL dispute resolution form online.

Build a Strong Credit History:

If you have never borrowed any money, you will probably have a low CIBIL score range. You can build a strong credit history through a healthy habit of borrowing and repayment of funds. Having a strong credit history will make it easier for you to borrow money in the future and get lower interest rates.

Before taking a personal loan, there are certain things that you must consider in order to make your application process a smooth one. Below is a take on how a personal loan can be affected by your financial history.

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Different factors affect your personal loan. A credit score will have a direct impact on loan approval. Credit score can either help or affect your instant loan application. Through the best loan aggregators, you can enhance your credit score with vivid repayment options.

Your financial behaviour will influence your future financial plans to build a credit score. Some key factors to consider before availing of an instant personal loan are:

  • Income liquidity: One important factor to consider before availing of an instant personal loan is to assess your capacity to repay the instant personal loan. It is one of the assurances you can give your lender for loan approval.
  • Age: the eligibility criteria for a personal loan will depend on age. A financial institution will easily reject a loan application if the age is below or exceeds the requirements.
  • Job instability: If you repeatedly change jobs, it could be difficult, and you can even reject your financial institution.

Read More: 10 Facts About Credit Score Everyone Should Know!         

As we all know, a credit score is essential when taking a personal loan as it is the determining factor. So how exactly are these factors that affect your loan application? Find out more below.

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How Exactly Does Applying For a Loan Affect The CIBIL Score Range?

Loan applications influences a credit score, which is improved or impaired depending on your financial habits. Making the right decisions at the right time will be very important. Making wrong financial decisions like getting a new loan with outstanding debt will put anyone in a soup. So, it is highly advised to avoid making such mistakes.

If you want to improve your credit score, then understand that your average credit score will only get a small makeover with a new loan. Having a good credit score is like being a captain on a ship whose experience results from a long, challenging journey in the sea that takes years to navigate. Similarly, only through a constant and conscious effort of making on-time payments, with no bounces, and not defaulting on the last EMI will help you increase your CIBIL score range.

Thus, taking a new loan will have only a small impact on your credit score. The easiest and best way to keep a personal loan from lowering your credit score is to make your payments on time and within the tenure of the loan.

Read more: The Story Of A Man Who Made It To 750 Credit Score

In Conclusion

Having a good credit score in 2023 is very important as loan interest rates have been steadily increasing. Finance is essential in our day-to-day lives and especially important during emergencies. So, having the resources to get instant financial help when in need is crucial. A good CIBIL score range will help you get closer to financial stability in the long run. If you would like to improve your CIBIL score, get an instant personal loan through Buddy Loan today. Apply for a personal loan NOW. If you have any queries?

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Frequently Asked Questions

Q. What is the Ideal repayment time for a personal loan to maintain your credit score?
The ideal repayment tenure for a personal loan to maintain a credit score will vary between 3 months to 5 years. The earlier the payment is made, the better. Your credit score enhances based on the EMI amount and interest rate.

Q. Can I get a loan with a low credit score?
It takes years to build a good credit score. Having a good credit score does not happen overnight. Although getting a loan with a low credit score can be difficult, it is possible. When in a dire situation, some financial mediators can help with availing of an instant personal loan. Buddy Loan is an aggregator that can connect a lender to a borrower with very few documents required. So, do not worry, as there is help and support available at Buddy Loan