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Importance Of Credit Rating Explained

Published on Mar 1, 2023

Importance Of Credit Rating Explained

Your credit rating is an important factor for a variety of financial activities, such as applying for loans, mortgages, and credit cards. Many people don’t understand why their credit rating matters or what it even means. Even those who do know might not understand the importance of maintaining a good CIBIL score.

In this blog post, we will explore what exactly a credit rating is and why it’s so important. We'll discuss how to check your credit score and the implications of having a poor credit rating. Read on to learn more!

What Is CIBIL Score?

A CIBIL score is an assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. It is based on the credit history and current status of the borrower, as well as other factors. The purpose of a credit rating is to provide information that can be used to make lending decisions.

CIBIL scores are important because they provide an independent assessment of the creditworthiness of a borrower. This information can be used by lenders to make informed decisions about whether or not to extend credit.

A strong CIBIL score for personal loan indicates that a candidate is likely to be able to meet its financial obligations, while a weak credit rating may indicate that one is at risk of defaulting on the debt.

Must Read: 5 Big Factors That Can Affect Your Credit Score

How is Your Credit Rating Determined?

There are a number of different factors that go into determining someone's credit rating. Some of the more important ones include:

  • Payment History: This is perhaps the most important factor in determining your credit rating. If you are someone who consistently makes their payments on time, you will have a good CIBIL score.
  • Credit Utilisation: This refers to how much of your available credit you are using at any given time. It's generally best to keep your utilisation rate below 30%, as this shows lenders that you are not maxing out your credit cards and putting yourself at risk of defaulting on your debt.
  • Length Of Credit History: A longer credit history typically means a better credit score, as it shows lenders that you have been managing your debt responsibly for a long period of time.
  • Types Of Credit: This refers to the various forms of debt an individual may have, such as a mortgage loans, student loans, auto loans, etc. It is considered advantageous to have a diverse mix of debt as it demonstrates that one can manage different types of payments responsibly.
  • Inquiries: Every time you apply for new credit, an inquiry is placed on your report. Too many inquiries can signal to lenders that you are in financial distress and looking for more money than you can afford to repay. This can negatively affect your CIBIL score for personal loan.

Importance of Credit Ratings

Credit ratings are important because they give lenders an idea of how likely you are to repay a loan. A high credit rating means you are a low-risk borrower, which could lead to a lower interest rate on a loan. A low rating could lead to a higher interest rate and could mean you won’t be approved for a loan at all.

They are essential because:

  • They provide an easy way for lenders to assess the risk of lending money to a borrower. 
  • A good CIBIL score means that the borrower is less likely to default on their loan, and therefore the lender is more likely to get their money back. 
  • Credit ratings are also important because they can affect the interest rate that a borrower pays on a loan. 
  • Borrowers with higher credit scores will typically qualify for lower interest rates than borrowers with lower credit scores. 
  • This can make a big difference in the total cost of a loan over time.
Must Read: How is Your CIBIL Score Calculated?


Credit ratings are an important factor to consider when making financial decisions. They help lenders assess the risk of lending money and provide insight into how reliable a borrower is likely to be. By understanding your credit rating, you can make informed decisions about borrowing money or investing in products such as stocks, bonds, and mutual funds. With this knowledge, you can take steps to improve your credit score and protect yourself from potential financial difficulties that may arise due to poor credit history.

If you have a good CIBIL score, that is, if your CIBIL score is 750 or above, you can apply for a personal loan under Fullerton India. You can take online loans for up to INR 25 lakhs* without collateral and enjoy personal loan rates of interest starting at only 11.99%* per annum. Through the personal loan eligibility calculator, estimate if you qualify for the loan and apply now.

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*Terms and Conditions apply. Loans are disbursed at the discretion of Fullerton India.

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