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How Insurance Can Help Your CIBIL Score

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September 24, 2018

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You may have heard the word CIBIL before. But do you know what it means? CIBIL stands for Credit Information Bureau (India) Limited. It is India’s first ever Credit Information Company (CIC). This means that they maintain a record of every individual’s credit-related activity. Whenever somebody takes a loan or applies for a new credit card, their information is passed on to CIBIL. Every month, major financial institutions and banks submit their records to CIBIL, which will then look into people who may have skipped a loan payment, or missed the deadline for their credit card bill. Based on each individual’s credit-related activities, CIBIL works up a report for each person, which is known as their credit score. This credit score becomes incredibly important going forward.

Let’s take a look at how your CIBIL score can affect your life. We’ll assume you’ve taken a loan for your car. You’ve made your payments on time, every time. All this works in your favour, and you’ve got a good CIBIL score. Once you clear your debt, you are hoping to apply for a credit card. Your application is likely to be approved very quickly, thanks to your favourable CIBIL score. Conversely, let’s assume that you were unable to make a majority of your loan payments on time. This will reflect negatively on your CIBIL score, causing your credit card application to either be rejected, or approved with a significantly lower limit than you would have hoped for.

So, what can we do to increase our CIBIL scores?

Since your credit rating has a great influence on your financial future, let’s quickly take a look at how we can improve our credit scores:

  1. Apply for Loans Intelligently

    If you’ve never applied for a loan or credit card, it could reflect negatively on your score. So, make sure you fill out an application when necessary, as this could boost your credit rating. However, you should refrain from continuously applying for a loan right after you’ve been rejected.

  2. Make Your Payments on Time

    The easiest way to keep your CIBIL score high is by making sure you take care of your debt in a timely fashion. Don’t default on your loans and never skip a credit card payment. If you find yourself struggling with an EMI, you should approach your bank and renegotiate the terms of repayment. That will reflect better on your credit score than a few missed payments.

  3. Don’t Settle

    Often, people approach their banks to ‘settle’ their outstanding credit card bills or loans. This means that they’ll work out a deal with the bank that allows them to pay an amount lesser than the total owed to close their debt. While it does get you out of debt, it isn’t a positive sign on your credit score.

  4. Avoid Making Lump Sum Payments

    If you don’t pay your EMIs for three months and then suddenly clear your debt a couple of months later, it’s a big red flag for your credit score rating. It makes your financial situation look unstable, and could lead to a lower score. Make your payments on time if you want to improve your CIBIL score.

What has insurance got to do with my CIBIL score?

On the face of it, right now, there is no direct correlation between your insurance policies and your CIBIL score. While it is true that insurance companies may look at a person’s CIBIL score in the future to determine whether they should be issued a policy or what their premium should be, that’s not the case right now. But, there is still a way in which insurance can help improve your CIBIL score.

Let’s assume that a young man and his wife are excited about buying their first home. They’ve found the perfect place, and they’ve taken a loan to help them with the down payment. They both have excellent CIBIL scores, so the loan wasn’t too difficult for them to procure. For a year, everything is going well, and they’re working hard to pay off their debt. Sadly, an accident leaves the man bound to a wheelchair. Apart from the high medical expenses attached to helping him recover from the accident, the man also lost his job as a tour guide. Now, the entire burden of paying off his medical bills and the home loan has fallen on his wife’s shoulders. Money gets a bit tight, and they miss a few of their loan payments, so their CIBIL score drops considerably.

But, let’s assume the man had a good insurance plan with Accidental Disability Rider that gave him a lump sum payout after the accident. Not only would a medical plan look after his hospital bills, but he’d also have some extra money to tide him over and help pay off his EMIs while he finds himself a new job. Here, insurance saved the young couple from a bad credit score and losing their home.

There are a few other scenarios in which insurance is vital. To explain this, let’s look at a man who has just retired from work. He has built up a lovely retirement nest egg for himself and his wife. And while the money he’s saved up is more than enough to help with their bills for life at home, he doesn’t have enough extra money to pay for tickets to visit his son and grandchildren who live abroad. He may want to take a loan for this, but as a person who doesn’t have a regular source of income, his CIBIL score might dip a little. This means that his loan is likely to come with an incredibly high rate of interest – assuming it’s approved at all.

Now, let’s say the man also had the wisdom to put some money in a ULIP (Unit-Linked Insurance Plan) while he was still working. Over time, he’s earned returns from that investment, and he can use that money to pay for the tickets, or for any other emergency expense he may have to incur in his retired life. Technically, a ULIP won’t help him increase his CIBIL score, but it will help him out at a time when his CIBIL score has let him down.

Finally, if you’ve taken a loan, it doesn’t disappear if something were to happen to you. Instead, the loan would fall on the shoulders’ of your family members, and they’d be forced to deal with a burden of debt even before they’re ready to. But, a good life insurance plan could allow you to leave behind a happy legacy for your family, instead of a legacy of debt. The money your family would receive from your life cover will allow them to pay off some, if not all, of your debt while they struggle to deal with their grief.

CIBIL and insurance may not directly be related just yet, but there’s no denying the fact that having insurance could indirectly keep your credit rating quite high. So, if you’re ready to look after yourself, your loved ones, and your CIBIL score, click here  to get insured.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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