Have a good CIBIL score? So tell the bank – reduce the interest! You will be surprised to know the rules of RBI

CIBIL Score: Nowadays taking loan has become a common thing. Some people take loan to buy a house, some for a car and some for their personal needs. But have you ever wondered why some people pay less interest on the same loan, while others pay more? The biggest reason for this is your CIBIL score.

If you have a good CIBIL score, preferably 750 or above, this is a big advantage. Very few people know that RBI (Reserve Bank of India) has given freedom to banks and NBFCs to decide the interest rates based on the risk profile of the customer. This means that if you are a loyal customer, the bank will not charge you higher interest rates.

CIBIL score affects loan interest rates

As per RBI rules, banks adopt risk-based pricing model. This simply means that customers who are less likely to default on their loan will get the loan at a lower interest rate and this probability is determined by your CIBIL score. Therefore, with a good CIBIL score, you can confidently say to the bank, “My score is good, please reduce the interest rate.”

What is an ideal CIBIL score?

Today, most banks and NBFCs consider a CIBIL score of 750+ as ideal. Such customers not only get the loan easily, but they also get the benefit of lower processing fees, faster approval and lower interest rates compared to others. In many cases, customers with high credit scores are given special interest rates which are not available to regular customers.

Now the question arises that how do banks decide the interest rate? Be it a home loan or a car loan, the base rate of every bank is different, but the margin added to that rate depends on your CIBIL score. Lower score means higher risk, which means higher interest rates. On the contrary, banks are more willing to offer better deals to people with good scores.

How to improve your CIBIL score?

If your CIBIL score is not good, there is no need to panic. With a little understanding and patience it can be improved. The most important thing is to make payments on time, because even one late EMI or credit card bill can have a negative impact on your CIBIL score. According to RBI records, late payment information remains in your credit report for many years.

Pay attention to your credit card usage

Using your credit card too much can also be harmful. If your credit limit is ₹1 lakh and you are spending ₹90,000 every month, the bank will feel that you are in financial trouble. It is wise to use only a small portion of your credit limit.

Wrong entry in CIBIL report

Sometimes, there are mistakes in the CIBIL report, such as a loan that you never took or a payment that was made on time but is showing late. In such cases, it is very important to check the report and correct the mistakes. Even a small mistake can lead to higher interest rates.

Another important thing is that do not close old credit card or loan accounts unnecessarily. A long and clean credit history is a good sign for banks. This strengthens your CIBIL score and this score helps you in getting loan at lower interest rates.

Ultimately a good CIBIL score strengthens your financial health. The rules made by RBI are in your benefit, you just need to understand the importance of your score. So, the next time you need a loan and your CIBIL score is good, do negotiate with the bank for a lower interest rate.

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