Your CIBIL score plays a crucial role in your financial journey. It is an indicator of your financial stability and is used at many places to ascertain your future behaviour. Based on the history of your credit usage it depicts how you have handled loan payments in the past. If you have always been consistent with repayments then you will have a high CIBIL score. On the other hand if you missed or delayed the payments it will reflect in your report.
There are several ways in which a low CIBIL score will impact your day to day life.
A low CIBIL score can hamper your chances of obtaining loans in future. The first check that the lenders do to evaluate a loan application is the CIBIL score. Your score depicts how worthy you are as a borrower. Many lenders out rightly reject loan applications if the credit score is below their threshold point. This is because a low score means that the person didn't handle his past loan obligations responsibly. It increases the likelihood of defaults on payments on the new loan as well, and therefore makes you seem unworthy of credit.
Any default on previous payments gets recorded on your CIBIL report. Such black marks do not go well with the banks and financial institutions. If you have a low CIBIL score, banks will not only be apprehensive to grant you loans but also credit cards. Some banks may even lower your credit limit on your existing cards based on your low credit score.
Even if some lenders agree to grant you loans with a bad credit history, they will charge you a very high rate of interest to compensate for the greater risk that they are exposed to. If the tenure of the loan is long, then the compounded interest will prove to be quite expensive. A good CIBIL score on the other hand will give you more negotiation power to command best terms and interest rates. Hence a high score will reduce your EMI amount, and help you save a lot of money.
Credit check is no longer limited to loan approvals, it is now used as a selection criteria before calling candidates for interviews. Many company especially those in the Banking and Finance space has employee verification norms wherein they check a person's credit score before hiring him. This background check process is more prevalent at the senior level. So if you are looking out for a job, then checking your credit score and improving it, is as important as preparing for the job interview. A low score shows problems in terms of your repayment patterns. This may result in non-selection for a particular job even if you were otherwise well qualified for it.
To avoid the risk of frauds and defaults in payments many landlords these days ask you to show your credit report and score before letting out their house. A high score shows that one is financially stable and wins the trust of landlords. But if you haven't being paying your bills on time or have a history of defaults on loan repayments then it will puts you in a bad light and reduce the chances of getting a house on rent.
Globally a credit score is also used by the insurance firms to set the premium charges on their policies. Even telecom companies use it to set the security deposit that they require before giving a connection. It may not be long when Credit information bureau of India may partner with insurance firms and telecom companies who want to get comprehensive data about the payment patterns of the customers. If this happens then your score will also affect the insurance premiums and your ability to get post-paid mobile connections.
Hence a bad credit score affects many more aspects of your life than what you must have imagined. Any bad credit decisions will keep you on the back foot. It may not put an end to your financial journey, but it definitely slows it down. Though there are lenders who might be willing to offer loans even with a low CIBIL score the rate of interest tends to be significantly higher in such cases. Hence it is prudent to maintain a good credit history. Like an annual health check-up do a regular CIBIL score check too, to take charge of your financial life.