The TransUnion CIBIL Limited came into existence in August of 2000. Started as the Credit Information Bureau (India) in the financial capital of India, Mumbai, CIBIL was the country’s first Credit Bureau. CIBIL began with consumer operations in 2004 and stepped into commercial credit operations in 2006. By 2011, CIBIL Score was accessible to individual consumers as well. Currently working in partnership with TransUnion International, a worldwide credit bureau, CIBIL has credit records of over 550 million businesses and individuals across the
Most of us are familiar with the concept of borrowing and lending. You would have come across at least one person who often forgets to return the money that he/she borrows. This makes you think twice to lend to that person because of their forgetful nature. Similarly, lending institutions would like to issue loans and credit cards only to those who they deem creditworthy. CIBIL score is one of the significant metrics that is used by the credit institutions in India to measure an individual’s creditworthiness. country.
What is CIBIL Score?
CIBIL score is one of the most important factors that almost every financial institution check when they receive credit application from individuals. TransUnion CIBIL has affiliations with almost every bank to gauge the creditworthiness of millions of individuals and enterprises. A high CIBIL score denotes not only your excellent financial discipline but also your integrity. Every time you apply for a loan or a credit card, your recent score (last six months) is checked. Generally, any score above 700 is considered excellent, though some banks keep the bar high and some do not mind lowering the standard.
CIBIL Score Chart
The following is a table depicting the various CIBIL scores and what it may mean.
CIBIL Score | Meaning |
850 – 900 | Indicates that one has never defaulted on their payments even once and is an excellent score. |
750 – 850 | 80 % of loans are approved for people who have a score above 750. This gives them the advantage to bargain for a better rate on credit cards and personal loans. |
700 – 750 | This indicates that the person is good to go for secured loans. However, for an unsecured loan, the bank may impose a higher rate or investigate further. |
500 – 700 | This indicates that a person has defaulted on their payments a few times. Personal loans would be hard to obtain, and a private financier may levy a massive interest. |
300 – 500 | This is considered an inferior score and indicates too many discrepancies in loan repayments to ignore. Unless the person works on improving their score, it would be close to impossible to obtain any credit from any bank in the country. |
Who Computes the CIBIL Score?
TransUnion CIBIL is a credit bureau or credit information company, incepted in 2000, the first of its kind in India. The firm computes the CIBIL score of individuals based on the consumer information stored in their repository. They are known for their accuracy and transparency in the calculation of the score.
Factors influencing CIBIL Score
Repayment History- An individual’s behaviour in the past is an indicator of their future. Every time a person avails credit or a loan, the lender is bound by duty to report the same to the CIBIL. The bank takes note of whether an individual repays their debts on time. If an individual makes an effort to repay in advance, it is considered as a positive sign. This indicates that the person can be trusted to repay the amount he owes.
Drastic Increase in Credit- Every earning individual would have a certain credit limit, be it for a loan or a credit card. However, utilising the available credit in its entirety would come off as credit hungry which are seen as red flags by banks. If an individual maintains their certain credit level for all the months but is seen spending significantly more financially, it may result in a dip in the score.
Debt to Income Ratio (DTI)- Typically, lenders do not encourage people to take more debts than roughly 40 per cent of their total income. So, DTI is a measure that is used to estimate the ability of a loan applicant to repay their debts based on their salaries. DTI is considered to be a useful metric to inculcate financial discipline in one’s self so that one would be able to repay their future EMIs without any trouble.
Multiple Loans- It is also a concern to banking authorities when an individual has many loans such as a home loan, personal loans and vehicle loan and various credit cards registered in their name. It is always a good sign to close one before moving on to avail another one.
Uses of CIBIL Score
Loan Approval- There exists a common misconception that is simple to avail secured finances such as home loans, personal loans and more if one provides the bank with any valuable security. This is not always the case. Bank’s always looked into a person’s past credit behaviour before approving any loans. This is how banks decide an upper limit and an interest rate. With a poor CIBIL Score, it is difficult to avail loans.
Approval of Unsecured Loans- If an individual has no security to offer a bank for a loan, a clean chit from the TransUnion CIBIL is of utmost importance. It is easier for a borrower with a high CIBIL score, of say 700 and above, to get their loans sanctioned without any security. If an individuals score is above 800, they may even get a higher amount than generally given by a bank.
Interest Rates- Interest rates vary for different loans at different banks. Some may get a better deal than others even in the same bank. An excellent CIBIL Score gives you the power to bargain with banks for a better deal. Creditworthy customers have the authority to compare offers from different lenders and negotiate as they are assets for any financial institution.
Insurance
Another financial instrument that depends mainly on trust and credibility is Insurance. Be it a life cover, medical insurance and so on; insurance companies carefully track history and general handling of debts and dues of any given individual. Therefore, it helps them to determine if one can enjoy a lower premium compared to other policy members with low credit score.
Credit Card Offers- Credit cards can give a host of benefits if used efficiently. Though credit cards allow a definite zero interest period, the interest rates may shoot up drastically if one delays a repayment. With a good CIBIL score, credit card companies would aim to offer one the best possible deal. Alternatively, else, one may even end up with a rejection or an impossibly high-interest rate.
Improving CIBIL Score
Avail a recent credit report- Availing a recent credit report will give an individual an idea of their current position and where they went wrong. For example, if their score had dipped due to a couple of delayed payments, they should ensure that it does not happen again. Keeping targets for at least 6 months or so would help one to correct their errors if any.
Never delay payments- It is common to see people pay off their minimum dues and procrastinate on their actual payments. However, CIBIL score greatly fluctuates even when a minimum due is paid. One has to pay their full dues and EMIs on time to keep improve their score. It is a good idea to automate payments at the beginning of a month to avoid unexpected delays.
Creating a diverse credit-folio- This can act as evidence to any lender that one is capable of handling different kinds of credit. Creating a blend of secured loans and unsecured loans can achieve a diverse credit-folio. A high number of unsecured loans would not look favourable in any person’s name.
Getting rid of unused credit cards- Keeping one or more credit cards idle is never a good idea. If there is no use of a credit card, one must make sure to close it with the bank.
Efficient debt handling- An individual’s score can improve well if they know how to handle their debts efficiently. For instance, a credit card works on the concept of revolving credit and may go out of control if not managed properly. In such cases, closing off credit card dues with a personal loan is a great move. One would have to pay less interest and also, can solve an issue efficiently.
Stop maxing out credit- Just because a credit card has a luxurious limit, does not mean that one has to use it all up. Keeping to the Debt to Income Ratio would help one to stay on the safe side of using credit cards.
Avoid prolonging tenures- The tenure of an individual loan or credit is an essential factor that can improve one’s score. For example, if a person has taken a personal loan with a tenure of 3 years, and have raised the tenure midway for a smaller EMI, it may affect their CIBIL score negatively.
FAQs
Q: What to do if there is an error in the credit report?
If you notice an error in the credit report you can dispute the error on the CIBIL website. Errors in multiple fields can be disputed in a single dispute.
Q: What other credit agencies are functional in India?
The Indian government has authorised four credit reporting agencies including TransUnion CIBIL. The other three agencies are:
- Experian PLC
- HighMark Federal Credit Union
- Equifax Inc
Q: How long does CIBIL take to resolve my dispute?
Upon submitting the dispute, it may take around 30 days for the organisation to resolve your dispute.
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