CIBIL stands for Credit Information Bureau Limited. It is the first company established in India for providing Credit Information for individuals & non-individuals.
Basically, they collect information about credit cards and loans from banks periodically (on monthly basis) and thus determine the Credit Information Report and Credit Score.They maintain those records and then on the request by any bank or lending agencies they provides that information to them.
WHAT IS CREDIT INFORMATION REPORT?
Credit Information Report (CIR) is a detailed report generated by the company. The report basically contains the CIBIL Score, Personal information, Contact Information, Employment Information, Account Information, and Enquiry Information along with Consumer Dispute Remarks.
WHAT IS CREDIT SCORE?
CIBIL Score is a three-digit number assigned to the individual or non-individual based on the credit information example loans taken and repayment of those loans, Payment of timely credit card dues, how well the person is maintaining mix of secured and unsecured loans
Generally, this information is useful to lending agencies and bank to analyse and ascertain whether to approve the loan or not of that individual or non-individual.
WHAT ARE THE FACTORS THAT AFFECT THE CIBIL SCORE?
- All the past repayments of loan are done or not
- Repayments are done within due date or not
- Previous loans writing offs
- Maintaining mix of secured loans (Auto & Home loan) and unsecured loan (Personal loan &Credit Card)
- How many loans have been taken in past
WHAT IS THE IMPORTANCE OF MAINTAINING GOOD CIBIL SCORE?
- It serves as the first thing that is considered by the banks when a person applies for the loan. In other words, if your Score is high then you are likely to get you are likely to get your loan application approved as compared to people with low Score
- Not only good Score helps in getting the loan approved. It can also help you in getting better interest rates as well.
WHAT ARE THE WAYS AVAILABLE TO IMPROVE YOUR CIBIL SCORE?
- All the past repayments of loan are done
- Repayments are done within due date
- There should be no writing off of the loans
- Maintaining mix of secured loans (such as Auto, Home loan) and unsecured loan (such as Personal loan, Credit Card)
- Fewer Loans have been taken in the past
WHAT ARE THE MYTHS THAT ARE RELATED TO CIBIL SCORE?
- CIBIL scores is only factor considered for getting loan application approved/rejected
One of the most common myths we come across is this. But we need to understand that CIR & CIBIL Score is the primary thing taken to consideration by banks. Apart from that, there are several factors that are considered example the income of the borrower, other underwriting policies etc.
Thus, there can be instances that even after maintain good Score the loan application might get rejected because of some other factor.
- Ideal Scenario is having Zero credit history
Some believe that if the person has not taken any loan/credit card in the past it will be considered ideal. But, this is not true as ideal credit history is one in which person has taken loan or credit card and has made timely payments.
- Unable to get loans or credit card throughout life because of Low CIBIL score
This thinking is wrong as there different banks have different credit policies. Also, CIBIL Score & CIR is the primary criteria, not the only criteria. Thus, if your application got rejected in one bank it might get approved in another bank. But the interest rates could be high for low CIBIL Score individuals.
- Low CIBIL scores ruin one’s credit reputation forever
Low CIBIL Score does not mean your credit reputation is ruined for life as CIBIL score improves if your credit history is improving. Also, the banks ask for fresh CIR & CIBIL report for fresh loan applications. Thus they get the updated information.
- Record maintenance of defaulters by CIBIL
CIBIL does not maintain records of the defaulters rather it collates the credit history of the individuals. It provides this information to the Banks or financial institutions and they evaluate the CIR & CIBIL Score accordingly.
- Supporting banks and financial institutions is sole purpose of CIBIL
CIR & CIBIL score not only helps banks or financial institution in analysing and approving loan applications but it also serves as the information providers to individuals about their finances. By having a look at CIR & CIBIL score they come to know about their Credit worthiness and thus can also improve it if required.
- Making correction in credit reports is allowed to CIBIL
Making any kind of change in the CIR is not at all authorised CIBIL unless the change has been approved by the bank or financial institution.
WHAT ARE THE REASONS DUE TO WHICH THE LOAN APPLICATION CAN GET REJECTED EVEN AFTER MAINTAINING GOOD CREDIT HISTORY?
- Guarantor of a defaulter
If the person has given guarantee for friend/family for any loan, and the person defaults the loan then this will have an impact on the guarantor’s CIR & CIBIL Score. Thus, it is important to sign the loan guarantee only if you feel the person will not end up being a loan defaulter.
- CIBIL Report comments
Most of us only read the Score and ignore the comments mentioned in CIR. Those comments hold great significance while approving the loan. As bank read the comments/remarks mentioned by the previous lenders.
At times when a person defaults loan then the banks ask them to pay less amount. Once the amount has been paid the account gets closed but this incident is reported in the remarks section as “SETTLED”. This remark gives negative impact to the current loan application.
- Tax History
People paying regular tax are more trusted by banks.
- Identity mistook with a defaulter
In most of the cases if the house owned by you was previously of a defaulter then there are chances that your personal information might get mistaken of a defaulter. This might result in getting the loan application rejected, even when you possess a good Score. In such a scenario, you need to inform the same to the bank and reapply.
- Limited History
If the person has not taken any loan/credit card in the past then there are chances of loan application getting rejected. As the banks will not be able to analyse that person will be able to repay the loan or not.
- High Credit Utilisation
At times CIR reveals that the person is in habit of taking loans though the person is repaying the loans on time. Then also the banks check the credit utilisation ratio. The more close a person is of utilising maximum credit limit less will be the CIBIL Score.
WHAT IS CIBIL SCORE RANGE?
|NA or NH (No History)||If the person has no credit history in the past 24 months or is new to credit system|
|1-2||If the credit history about a person is less than 6 months|
|350 – 550||Payment defaulting|
|550-650||Being fairly regular with payments|
|650-750||Better credit history then individual with score of 550-650|
|750-900||Extremely regular with credit payments and having an excellent credit history|