In a world driven by credit—be it home loans, car loans, credit cards, or even buying a phone on EMI—your CIBIL score is your financial identity. It speaks louder than your salary slip. A good score can open doors to faster, cheaper loans, while a bad one can quietly cost you lakhs of rupees over the years.
Let’s say you want a ₹50 lakh home loan. With a high CIBIL score, you might get an interest rate of 8.35%. But if your score is low, the bank could offer you the same loan at 10.75%. This seemingly small difference will cost you nearly ₹19 lakh more over the loan tenure.
So, what exactly is a CIBIL score, and why is it so important? How can a three-digit number control your financial future?
Let’s dive into it.
What is a CIBIL Score?
A CIBIL Score is a three-digit number ranging from 300 to 900, generated by TransUnion CIBIL – one of India’s major credit bureaus. This score reflects your creditworthiness, i.e., how likely you are to repay your loans on time.
Credit Score Range:
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300–549: Poor – Major red flag for lenders
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550–649: Fair – You might get a loan, but at a high cost
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650–749: Good – Reasonable approval chances and terms
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750–900: Excellent – Easier, faster, and cheaper credit
The score is calculated based on your past loan repayments, credit card usage, number of credit inquiries, and other financial behaviors.
The Real Cost of a Poor CIBIL Score: ₹19 Lakh More!
Let’s break down the cost of a low CIBIL score with an example.
Scenario 1: High CIBIL Score (820)
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Loan Amount: ₹50,00,000
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Interest Rate: 8.35%
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Tenure: 20 years
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Total repayment: ₹1.03 crore (₹53 lakh as interest)
Scenario 2: Low CIBIL Score (580)
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Same loan, but interest rate: 10.75%
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Total repayment: ₹1.21 crore (₹71.82 lakh as interest)
The Difference:
₹71.82 lakh - ₹53 lakh = ₹18.82 lakh lost just because of a low score!
And this doesn’t include other losses like loan rejection, delays, or expensive insurance premiums.
Why is the CIBIL Score So Important?
Whenever you apply for a loan or credit card, the first thing a bank does is pull your CIBIL score. Based on this, they decide:
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Whether to approve your application
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What interest rate to offer
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Whether you need to provide collateral
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How much loan you’re eligible for
Even if you’re earning well, a low score can damage your credibility.
Top 5 Disadvantages of a Low CIBIL Score
1. Loan Rejections
Banks may reject your loan application outright if your score is too low. Even fintech lenders may hesitate.
2. Higher Interest Rates
If your loan is approved, it will likely come at a higher rate, increasing your EMIs and total repayment.
3. Higher Insurance Premiums
Many insurance providers consider your credit score while deciding premiums—especially for health and motor insurance.
4. No Pre-Approved Offers
People with good scores often get instant loan or credit card approvals. With a poor score, you miss these perks.
5. Longer Approval Times and Heavy Scrutiny
Your documents will be scrutinized more closely, and your approval process may take longer—even for smaller loans.
How Does the CIBIL Score Get Damaged?
✅ Late or Missed EMI Payments
This is the most common reason for score decline. Each late payment negatively impacts your score.
✅ Loan Settlements
If you settle a loan for less than the due amount, it shows as “settled” in your credit report—a big negative mark.
✅ High Credit Utilization
Using more than 30–40% of your credit card limit regularly indicates over-dependence on credit and weak financial planning.
✅ Too Many Loan Applications
Applying for multiple loans in a short span causes several hard inquiries, which signal desperation and harm your score.
✅ Being a Guarantor for the Wrong Person
If you’re a guarantor for someone and they default, you will bear the consequences in your credit report.
How to Check Your CIBIL Score (Free of Cost)
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Go to the official CIBIL website
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Register with your PAN, DOB, and mobile number
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You can check your score for free once a year
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Alternatively, use platforms like BankBazaar, PaisaBazaar, Cred, or Paytm
How to Improve a Low CIBIL Score: A Step-by-Step Guide
🔁 Step 1: Pay All EMIs and Bills on Time
Timely payment of loans and credit cards is the most effective way to improve your score. Set auto-debit reminders if needed.
🔁 Step 2: Reduce Credit Utilization
Try not to use more than 30% of your total credit limit. If your limit is ₹1,00,000, keep usage below ₹30,000.
🔁 Step 3: Avoid Multiple Loan Applications
Don’t apply for loans or cards frequently. It makes you look credit-hungry and high-risk.
🔁 Step 4: Never Settle Loans
Always pay loans in full. Settlements damage your credit profile for several years.
🔁 Step 5: Monitor Your Joint Accounts
If you're a co-borrower or guarantor, keep an eye on the other party’s repayment behavior.
🔁 Step 6: Start Small to Build Credit
If you’ve never taken a loan, consider a small personal loan or secured credit card and repay it diligently.
🔁 Step 7: Dispute Errors
If your report shows loans you didn’t take or incorrect defaults, raise a dispute with CIBIL and your bank immediately.
How Long Does It Take to Improve a CIBIL Score?
Improving your credit score is a gradual process, not a quick fix. Depending on the severity of damage:
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Minor issues: 3 to 6 months
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Major defaults or settlements: 9 to 18 months
The key is consistency and financial discipline.
Why First-Time Borrowers Have Low Scores (And What to Do)
If you’ve never taken credit, your score may be NA or low. That’s not bad—it just means there’s no credit history.
What you can do:
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Get a secured credit card (against FD)
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Take a consumer durable loan (like on a phone or appliance)
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Repay early or on time every time
This builds a healthy track record.
FAQs on CIBIL Score
Q. Can I get a loan without a CIBIL score?
Yes, but your options are limited. You may need to provide collateral or pay higher interest.
Q. Does checking my score reduce it?
No. When you check your score, it’s a soft inquiry and does not affect the score. But when banks check it for loan approval, it's a hard inquiry, which may lower it slightly.
Q. Will closing a credit card increase my score?
Not always. Closing old cards may actually reduce your score by affecting your credit history length and credit utilization ratio.
Conclusion: Take Your Credit Score Seriously
Your CIBIL score may just be a number, but it has real-world consequences. It can determine whether you get your dream home, a business loan, or even an emergency credit card when you need it most.
A low score is like a financial tax—it silently robs you of better interest rates, premium services, and peace of mind.
So don’t wait for a rejection to realize its importance. Start managing your credit today—check your score, track your credit use, and stay disciplined.
Quick Recap:
| Task | Impact |
|---|---|
| Pay EMIs & Bills on Time | Boosts your score |
| Keep Credit Use < 30% | Shows good management |
| Avoid Frequent Loans | Prevents hard inquiries |
| Check Score Regularly | Spot issues early |
| Don’t Settle Loans | Protects your record |
| Act as Guarantor Wisely | Avoid others’ mistakes |
Remember:
A good credit score costs nothing to maintain, but a bad one could cost you lakhs.
Share this article with your friends or family—because financial health is worth spreading awareness about.
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