Credit Score

In order to get your application approved for getting the credit product that you desire, you need to follow the procedure specified by the lending institution. There are various financial documents that you need to submit with the lender, along with the application form. These financial documents are required to ascertain your creditworthiness and repayment ability. There is another key parameter that plays a pivotal role in approval or rejection of your application, i.e. your credit score.

Have you heard this term before but do not know what it means? Do you wish to know about the various important aspects of your credit score? Well, then read on and understand the A to Z of your credit score and its implications.

What is a Credit Score?

In simple terms, a credit score is the numerical representation of your creditworthiness as computed by a credit information bureau. This numerical value is calculated on the basis of a number of factors related to your financial history. The credit bureau assigns different weight to various aspects of your financial records and then arrives at this value. This numerical value is used by financial institutions to ascertain your eligibility for a loan or a credit card. In India, credit scores are scored between 300 and 900, with any score above 750 being regarded as good while any score below 600 regarded as poor. Higher your credit score, higher are the chances of your loan application being approved.

Some of the key aspects evaluated by a credit bureau to ascertain your credit score are:

  • Credit history: The number of loans that you have availed indicates your requirement for credit. Multiple running loans indicate a high dependency on credit.
  • Repayment history: Your repayment history takes into account the regularity with which the loan equated monthly instalments (EMIs) have been paid. Regular EMI payment indicates financial stability.
  • Active Credit Cards: The number of Credit Cards that you are running is taken into account to ascertain your short-term liquidity.
  • Credit Card utilisation ratio: The total amount that you have utilised out of your sanctioned limit indicates your dependency on high-interest credit in the short term. 
  • Defaults or write-offs: Any defaults or write-offs against the loans availed by you have an adverse impact on your credit score and reduce your eligibility to be approved for a loan or Credit Card.
  • Hard queries: Every time you apply for a loan or a Credit Card, the respective financial institutions check your credit score. If there are multiple queries in a short span of time, your credit score will be affected negatively.

Various other factors are also taken into account by the respective credit bureau to ascertain your credit score. In India, there are multiple credit bureaus, but CIBIL is regarded as the industry standard. It is accepted by most financial institutions and is regarded as the best indicator of one?s creditworthiness. Such is the popularity of CIBIL that it has become synonymous with the term credit score and credit scores are often quoted as CIBIL score.

What is CIBIL?

Credit Information Bureau (India) Limited, or CIBIL or TransUnion CIBIL, is the leading credit information bureau in India. Since its inception in the year 2000, CIBIL has moved on to become the leading name in the finance industry in India. CIBIL score is accepted by all leading banks and financial institutions to ascertain the creditworthiness of a borrower. CIBIL compiles periodic data from banks, non-banking financial companies (NBFCs) and other financial institutions to ascertain the credit score of an individual. CIBIL has two different divisions which deal with consumer credit records and commercial credit records separately.

Who Calculates CIBIL Score?

You must note that your CIBIL score is calculated on the basis of the data submitted by banks and financial institutions. Member banks and financial institutions, who are registered with CIBIL, submit records pertaining to loans and Credit Cards issued to their customers with CIBIL. These records are submitted periodically, monthly or fortnightly, to CIBIL. This data is then analysed as per the algorithm of CIBIL in order to prepare a credit information report comprising of the credit score and other details of the individual.

Various parameters are considered by CIBIL to arrive at a particular credit score. It is pertinent to mention that CIBIL only provides the credit score and credit information report. No credit-related decisions are made by CIBIL. This credit score issued by CIBIL is considered by the member banks and financial institutions while ascertaining applications for loans and Credit Cards.

How to Check CIBIL?

As per the latest guidelines issued by the Reserve Bank of India (RBI), every credit bureau in India is required to offer a free credit report to the individuals once a year. This guideline applies to CIBIL also, thereby allowing you to apply for a free CIBIL report, online as well as offline.

Check your CIBIL online

  • Log-on to the official CIBIL website of cibil.com
  • Now, click on the link "Click here to get your Free Annual CIBIL Score and Report online"
  • You will be asked to sign-up for an account. Enter your financial and personal information as asked on the screen.
  • After your account has been created, you will be asked to verify your email address and phone number. Complete this process.
  • Once your account is created, you can log-in to your CIBIL account to access your free CIBIL report.
  • You can also ask for a printed copy of your CIBIL report to be sent through the post

Check your CIBIL through the post

If you wish to apply for your CIBIL report through the post, you need to print the application form and filling the necessary details. You must attach your identification documents along with for the purpose of authentication. Once your application is received, and your details are authenticated, your CIBIL report will be mailed to you through the post.

As you are entitled to a free credit report once a year, you must use this opportunity and get your CIBIL report. This will allow you to keep a close watch on your CIBIL score and maintain it accordingly.

CIBIL Score for Loan and Credit Card Approval

CIBIL has emerged as one of the most widely used credit rating systems that are used by financial institutions to ascertain the creditworthiness of the borrower. In fact, such is the significance of having a good CIBIL score for being approved for a loan that it is the first parameter that is checked by the lender, as soon as you apply for a loan.

Before we discuss the CIBIL score required for loan and credit card approval, you must know a few facts about the CIBIL Score:

  • CIBIL score is calculated out of a total of 900
  • CIBIL uses data shared by member financial institutions to ascertain the credit score
  • Financial institutions share data with CIBIL, usually on a monthly basis. Therefore, your CIBIL score is also updated accordingly.
  • Specific weight is given to a number of factors to arrive at a credit score
  • If there are any doubts or disputes regarding your CIBIL score or credit history, you can raise the complaint with CIBIL.

In order to be approved for a loan or a Credit Card, you must note the following parameters used by the financial institutions:  

  • If your CIBIL score is above 800, it is regarded as excellent, and you have a high probability of being approved.
  • If your CIBIL score is above 750, but below 800, it is considered as very good and offers you a good chance of being approved for the loan or Credit Card.
  • If your CIBIL score is between, 700 but below 750, it is regarded as satisfactory but requires you to establish your financial stability through documents.
  • If your CIBIL score is below 700, it is regarded as poor, and there are very fewer chances of your application for a loan or credit card being approved.
  • Any CIBIL score below 650 is unacceptable, and your application would be rejected there and then.

As all banks and financial institutions are moving towards transparency in operations, the significance of a good CIBIL score is imperative. It is therefore essential for you to check your CIBIL score before applying for a loan or a Credit Card. If there are any issues with your CIBIL report, you must get it resolved before applying for a loan or a Credit Card.

What is a CIBIL Report?

CIBIL report is the credit report issued by CIBIL. This report is prepared by CIBIL based on the data shared by the member financial institutions periodically. It is a comprehensive document that details all aspects of your credit history and helps in ascertaining your creditworthiness. CIBIL report offers the lenders with an insight into your financial history and allows them to make informed decisions regarding your loan or Credit Card application.

With the improvement in technology and the increasing number of participating institutions with CIBIL, the credit report issued by CIBIL has become more comprehensive.

Following are the major components of a credit report issued by CIBIL:

  • Credit score along with major insights
  • Personal details like name, date of birth, address, contact number, etc.
  • Past and present employment details
  • Running loans with various financial institutions with repayment record
  • Information regarding any delays or defaults in repayments
  • Hard inquiries made by financial institutions
  • Settlement or write-off arrangements entered with banks
  • Running Credit Cards along with the Credit Card utilisation ratio

As member institutions send a report to CIBIL on a periodic basis, the CIBIL score and CIBIL report keep on changing accordingly. You must always refer to the latest CIBIL report before making any decision regarding applying for a loan or a credit card.

How to Read Your CIBIL report?

In order to leverage the full benefits on offer with a CIBIL report, you need to understand how to read your CIBIL report. The total length of your CIBIL report can run into multiple pages, depending on the number of loans and Credit Cards that you are using or have used in the past. There is nothing to be intimidated by the length of the CIBIL report as it is relatively easy to read through it, once you know the basics.

  • At the top of the first page of your CIBIL report, you will find your credit score along with the insights from the credit bureau. It specifies the reasons for the credit score and the factors that influenced the final score.
  • On the initial pages of the CIBIL Report, you will find your personal information such as:
    • Name along with the date of birth
    • Present and past addresses
    • Email ID and phone number
    • PAN number
    • Passport number
    • Driving License number
  • On the subsequent pages, you can check the details of every loan or Credit Card that you have ever taken. Each loan or Credit Card is mentioned separately along with essential details such as name of the lender, type of the loan, date of disbursal, starting date of repayment, interest rate charged, current balance (if any), closing date (if entire repayment has been made), repayment tenure, current status, repayment history, late payments, date past due or DPD.
  • Any special reports such as settlement, write-offs or defaults are also specifically mentioned. Such mentions in your CIBIL report reflect negatively on your creditworthiness.
  • In the end, there is a list of the hard enquiries made into your CIBIL report by the financial institutions. In this list, the name of the financial institution, date of inquiry and the amount applied for is also included. Too many hard inquiries in your CIBIL report are considered negatively by the lenders as it demonstrates your desperation for credit.

You must check the details of your CIBIL report accurately as there are chances of some mistakes being incorporated due to any reason. If you find any issues or discrepancy in the CIBIL report or any sections of the report, you must raise a complaint with CIBIL immediately. CIBIL will take up the matter with the respective financial institution, and if your claim is found to be right, the necessary changes will be incorporated immediately.

Benefits of a good CIBIL Score

While applying for a loan or a Credit Card, it is important for you to ensure that your CIBIL score is as per the guidelines of the specific lender. If the CIBIL score is below the prescribed limit, i.e., below 700, the chances of your application being approved will be reduced significantly. Whereas, in comparison, if your CIBIL score is more than 750, the probability of your application for a loan or a credit card being approved will improve substantially.

As your CIBIL score demonstrates your creditworthiness based on your past and present credit behaviour, it becomes important for you to ensure that it stays above 750 at all times.

There are various benefits that you can enjoy with a good CIBIL score, such as:

  • Enhances your eligibility: CIBIL score is the first parameter checked by financial institutions when you apply for a loan or a Credit Card. If your CIBIL score is above the threshold of 750, it enhances your eligibility for an unsecured loan or a Credit Card. For secured loans a score above 650 also works.
  • Quicker approvals: A CIBIL score of above 750 assures the lenders regarding your creditworthiness and expedites the process for approval of your application. Moreover, the number of financial details required by the lending institutions is considerably lesser for any applicant with a CIBIL score of above 750.
  • Higher loan amount: A CIBIL score of more than 750 indicates that the risk associated with your loan application is significantly lower. This enables you to apply for a higher loan amount as your eligibility calculated by the financial institution does take the CIBIL score into account.
  • Extended repayment tenure: When your CIBIL score is more than 750, it boosts the confidence of the lender in your repayment ability. This allows the lenders to offer you an extended repayment tenure as they have confidence in your repayment abilities.
  • Better interest rate: When your CIBIL score is above 750, it demonstrates your creditworthiness to the lenders. All lenders seek customers with excellent financial discipline and low-risk factor. This allows the financial institutions to offer you lower interest rates as compared to other applicants with a lower CIBIL score.
  • Easy access to credit lines: As you enjoy a good credit score of above 750, it opens up a plethora of credit opportunities for you. Financial institutions will be willing to offer you the money you require in quick time. This allows you to enjoy easy access to credit lines in times of emergencies, thereby eliminating the need for you to use up your savings.

How to Maintain a Healthy CIBIL Score?

The significance of having a good CIBIL score has become essential in the present times. When each and every loan or Credit Card application is subject to the CIBIL score of the applicant, it becomes important for you to have a healthy CIBIL score. Any CIBIL score of above 750 is regarded as "good" by the financial institutions.

If your CIBIL score is already above 750, then you must follow certain steps to ensure that it remains above that threshold:

  • Timely repayments: You must make timely repayments for your monthly instalments for the loans availed by you. A delay of even one day will not only lead to penal charges being applied but will also reduce your CIBIL score. For Credit Cards, you must make at least the minimum payment before the due date to avoid any impact on your credit score.
  • Low credit utilisation ratio: If you use a Credit Card, then you must ensure that at no point of time your credit utilisation ratio should be above 40%. In the case of multiple Credit Cards, the combined usage should be below 40% at all times.
  • Keep old credit lines active: Instead of applying for new Credit Cards regularly, continue using your old Credit Cards. The longer is the duration of your credit lines; higher would be your credit score.
  • Make repayments in full: When making repayments for your loan or Credit Card bills, always make it a point to never enter into any settlement. You must repay the entire amount as per the repayments schedule. Any settlement or write-offs will impact your credit score negatively.
  • Do not apply for multiple loans: Before applying for a loan or Credit Card, you must do your research and apply only with those financial institutions where you meet the eligibility criteria. When you apply with multiple lenders simultaneously, it reflects your hunger for credit and reduces your CIBIL score as well.

In addition to the above-mentioned tips, you must also ensure that you keep a close eye on your CIBIL score. Avail the benefit of the free CIBIL report and check your report thoroughly. If there are any loans that do not belong to you or there are any issues, immediately raise them with CIBIL and get them removed from your CIBIL report.

The Process to Re-build Your Score

Over time, it might happen that due to financial crunch or some other problems, your CIBIL score falls below the desired threshold. In such a situation, instead of losing heart, you must be pro-active. It is very much possible to rebuild your CIBIL score with a planned approach. As mentioned above, member financial institutions share their report and feedback with CIBIL periodically. So, you can plan your strategy to improve your CIBIL score accordingly, and over a period of time, your CIBIL score will improve to the desired levels. Although it is a time taking process, rebuilding your CIBIL score is certainly possible.

Here are some important tips that will help you formulate your strategy to re-build your CIBIL score:

  • Make timely repayments: What has happened in the past has happened. For whatever reason, you were unable to pay the EMIs on time, forget them. Plan your finances and start repayment towards the loan by managing your finances. Do not enter into a settlement with the financial institution, no matter how lucrative it might sound. When you start paying your EMIs on time, over the period your CIBIL score will improve.
  • Pay-off your Credit Card debts: Instead of paying the minimum amount due, you must try to repay your Credit Card debt as soon as possible. The high-interest bearing Credit Card debt weighs down your CIBIL score considerably and should be taken care of as soon as possible.
  • Apply for secured Credit Cards: You can apply for a secured Credit Card with banks that offer them against a fixed deposit. Make sure you repay the Credit Card bill timely and over a period of a few months, this will start reflecting in your Credit Card.
  • Debt consolidation: Instead of running multiple small loans, which can be difficult to keep track of, try and consolidate them into one bigger loan. You can take a Personal Loan for this process. Make sure your close other loan accounts by making full payment and then repay the instalments for the Personal Loan on time.
  • Do not make multiple applications: As your credit score is already low, you must not apply for a new Credit Card or loan until your credit score has improved significantly. Multiple hard inquiries into your account will again lower your already low CIBIL score.

So, if you keep up your healthy credit behaviour and good financial discipline, it will start reflecting in your CIBIL score over time.

FAQs - CIBIL Credit Score

What will be the consequences of making multiple loan applications on the CIBIL score?

When the applicant makes multiple applications with various financial institutions simultaneously, it results in multiple hard inquiries in the CIBIL report. This will reflect as credit hungriness of the applicant and lead to a reduction in the credit score.

How does late payment affect the CIBIL score?

When an applicant is approved for a loan or a Credit Card, it is assumed that the repayments will be made as per the loan schedule. When the repayments are delayed continuously over a period of time, they reflect as the inability to pay on the part of the borrower and increases the risk of default. As a result, the CIBIL score is reduced with every late payment.

Why do all financial institutions consider the CIBIL score important?

CIBIL score is issued by CIBIL based on the reports shared by the partner institutions. It reflects the creditworthiness of the applicant based on several key parameters. As such, the CIBIL score enables the banks and other financial institutions to assess the creditworthiness of the borrower and take an informed decision regarding the application.

How long does it take for the credit score to improve?

Credit score can fall below the desired levels due to any number of reasons. As such, there is no fixed timeline regarding how long it will take for a low credit score to rise up to the desired level. The applicant should follow healthy credit habits and observe financial discipline to improve the credit score.

Can the errors in CIBIL report be rectified?

There are chances that some errors might creep into the CIBIL report due to any given reason. It is possible to rectify the error in the CIBIL report through the website. There is a section titled "Dispute Resolution". Where in you can flag down any errors and ask for their resolution. If your claim is found to be right, the entry would be removed from your CIBIL report.

What is a good credit score?

There is no specific definition of a good credit score, but in general, practise, a score of 750 or above is regarded as ideal by the financial institutions. Any score below 700 is regarded as unsatisfactory and reduces the chances of the application to be approved.

What is the importance of control number in the CIBIL report?

The control number is mentioned towards the top-right corner of your CIBIL report. It consists of nine digits and is generated when banks access your CIBIL report. Control number helps CIBIL in identifying your credit report and is essential to be mentioned in all communications with CIBIL.

How do Credit cards affect the CIBIL score?

Credit Cards affect the CIBIL score significantly as they are basically high-interest instant loans. Excessive usage of Credit Cards signifies the propensity of the applicant to resort to expensive credit facilities. If the total Credit Card utilisation ratio is above 40%, it impacts the CIBIL score negatively.

How often is the CIBIL score updated?

CIBIL updates its reports every month based on the information and reports submitted by the member institutions periodically. CIBIL computes the credit score based on this information and updates the credit score accordingly in the reports.

What is the role played by CIBIL in approval or rejection of loan applications?

CIBIL is a credit information bureau that assesses the creditworthiness of an individual based on various factors and presents the same in a number format. It does not have any role in approving or rejecting loan applications. That process is the prerogative of the financial institution with whom the application is filed.

Latest News - Credit Score

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As per the latest reports by TransUnion CIBIL, the year on year growth in credit facilities availed by females has reached 48% between 2015 to 2018. In comparison, the growth in the number of male applicants has been 35%. Government policies aimed at the inclusion of females in the economy has played a significant role in this development. This presents great opportunities for financial institutions to develop customized products for women. 

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Availing unsecured Personal Loans is becoming easy for customers as financial institutions are now offering loans to applicants even with low credit scores. Multiple reasons are being attributed for this trend, including the rise of NBFCs, corporate loans turning bad, and the rise of online lending platforms.

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With the improved effectiveness in the retail lending industry with the help of CIBIL, now rental start-ups are considering launching a CIBIL like the rating for rating the customers. The idea behind this development is a better understanding of customer behaviour and reduction in wear and tear of the assets.

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