What is CIBIL?

Credit Information Bureau (India) Limited, popularly known as CIBIL is a credit information company and is the first of its kinds to be introduced in India. It originated in Mumbai 17 years ago. It is a company which has the database concerning the loans and credit cards of individuals and corporates. The data is collected from the lending institutions at periodical intervals.

CIBIL collects and maintains the credit details of individuals and corporates. It serves as a ready reckoner for credit patterns and financial discipline of individuals and corporates. Any decision relating to approval of proposals is not taken by the CIBIL. It only provides the credit history of the individuals and corporate, which enables the lending institutions to take an appropriate credit decision.

Based on the data supplied by the lending institutions, CIBIL prepares a credit history and depending on various factors, a credit score is drawn for each individual and corporate. The lending decisions and various offers given by the lending institutions depend on the credit score.

Impact of CIBIL

The recommendation of the RBI Siddiqui Committee was the basis to form the TransUnion CIBIL in the year 2000. The consumer bureau, which provides the credit history of individuals, was launched in the year 2004 and the commercial bureau, which provides the credit history of the corporates was launched in the year 2006. 82% of the stake in CIBIL was taken by TransUnion in the year 2016 to become TransUnion CIBIL.

The introduction of CIBIL is a boon to the lending institutions. In the absence of CIBIL, the lending institutions had to rely on the information provided by the customers. Earlier, when there were a few players in the market, there was a system of calling for "No due Certificate" from the other lending institutions to ascertain the commitments of the customer.

In the present scenario, with so many players in the market, it would be unimaginable to get the data regarding the commitments of the customer. This is where CIBIL is playing a major role when it comes to taking an appropriate credit decision in order to create good assets.

What is the CIBIL Score?

A CIBIL score is nothing but a credit score given based on the credit information report drawn by CIBIL. The credit information report contains a gist of the loans and credit cards of the individual with different lending institutions. It also gives an insight into the payment history of the individual. Details regarding the payments of loans and credit cards on or before due dates, written off, loan past due or settled accounts, etc., are all contained in the credit information report. A credit score is the rank given to everyone based on the credit information report.

You can also say that the CIBIL score is a character certificate in terms of honouring debt obligations. The three-digit score ranging from 300 to 900 is the credit score. The closer your score is to 900, the better will be your credit profile. That is because the creditworthiness of an individual is judged by the credit score. All the information in the credit information report is analysed and a credit score is drawn, which measures your creditworthiness. This will give an idea to the lending institutions about the commitment towards your debt obligations.

The information in the credit report is retained for a period of three years and during these years if you have defaulted and there are remarks like 'written off', 'settled' or 'loan past due' in the report, it will be viewed critically by the lending institutions. These remarks depict that at some point in time you were not able to honour your obligations and despite all the efforts, the lending institutions were not able to recover the dues from you and so had to either write off or settle the account.

Banks and financial institutions become very sceptical when they see such remarks in the report. You should always aim at paying off your dues on or before the due date to keep your credit score constantly on the higher side.

Why Calculate Credit Score?

A credit score is an overall evaluation of your credit history. It is like evaluating the merit by the rank scored by a candidate, which is given based on the report card. The moment the lending institutions glance at the credit score, they can evaluate the merit of the applicant who has submitted the proposal.

The most important aspect of your financial picture is your credit score. The credit score of the applicant determines the risk attached to the proposal. The credit score is a measure of your capacity to pay your dues promptly. That is the reason a benchmark is set for the credit score for lenders to accept a proposal.

Calculating a credit score is necessary as it can impact on various aspects of borrowing. With a good credit score, you can negotiate on the interest rates, various charges associated with a loan, the quantum of loan, etc. It is very necessary to build a good credit history if you intend to avail big-ticket loans like a home loan, car loan, etc.

Checking your credit score at periodical intervals for accuracy is very important. Sometimes, there may be discrepancies for which you are not at fault. If your score has declined at some point in time and you are perplexed because you have been paying all your dues on time, then it could be due to some discrepancies for which you are not responsible. You must locate such discrepancies and get it corrected by taking up the matter with the CIBIL redressal forum. This is very essential if you are going in for high ticket loans in the future.

How is the CIBIL Score Calculated?

Credit bureaus have their own algorithms to calculate the credit score, but the determinants to calculate the score are the same. There are four major components that are considered to calculate the CIBIL score. They are Credit History, Credit Utilisation, Credit Exposure, Credit Type and Duration, and a few other factors like credit enquiries.

Credit History

Credit History carries the highest weightage of CIBIL score, i.e., 30%. Different lending institutions provide the details regarding the loans and credit card details of their customers to the credit bureau on a monthly basis.

This credit-related information contains the details of payment of credit card dues and loan EMIs. The details are collated on to the credit information report and the credit score is calculated. If all the dues are paid on time, then the score will be good, and it will portray you as a trustworthy and a financially disciplined individual.

The report will also contain remarks like write off, settled and, loans past due. If you have defaulted a loan and the lending institutions have not been able to recover the dues despite persistent efforts, they will either write off or settle the loan. The loan past due reflects the overdue period. A credit report with these remarks will be viewed critically by the lending institutions. Such remarks in the credit report will decline the credit score.

To ensure that the credit score always stands high, you should put up a reminder for your credit card and EMI due dates and pay them well within the time.

Credit Utilisation

Credit utilisation carries 25% weightage in calculation of credit score. The percentage of credit utilisation is the ratio of credit limit to the outstanding in the account. A 30% credit utilisation is considered ideal. The more the credit utilisation, the higher will be the financial burden. This can be kept at the optimum level by paying up the entire outstanding balance in a billing cycle of the credit card.

Choosing to pay the minimum amount will increase the outstanding balance eventually, which will increase the credit utilisation level, and this will have a negative impact on your credit score. This can also be controlled by keeping a track of your spends on the credit card. Alternatively, you can go for another credit card to split the expenditure.

If at any point in time you feel that the utilisation is crossing the 30% level, you should resort to a debit card or cash for your further purchases. Most of us get into impulsive spending if we have a credit card. By doing so, we will end up in a debt trap which will not only bring down the credit score but will also become an eternal financial burden.

One other way to keep the credit utilisation at the desired level is to get the credit limit enhanced. However, the enhancement should not be frequent because it will give an inference that you are highly dependent on the credit card to manage your expenses.

Credit Exposure

The overall debt accumulation, i.e., the credit exposure for an individual can also be evaluated with the credit report. If the debt accumulation is not very high, i.e., if the number of loans availed is not many, then it indicates that you are not entirely dependent on the loans and credit card to manage your expenses. If the credit exposure is low, then the score will be high and vice versa.

Credit Type and Duration

Credit types are of two kinds - a secured loan wherein collateral security will be provided for the loan amount and an unsecured loan which does not require collateral security. A good mix of both secured and the unsecured loan will keep your credit score balanced. A weightage of 25% is given for credit exposure for calculating the credit score.

A higher number of unsecured loans will give a very low score even if the repayments are made promptly well within the due date. The reason being, unsecured loans are considered as high-risk loans since they are not backed by any collateral security. There is no recourse for recovery in the case of unsecured loans in the event of default by the borrower.

The duration for which you have availed your loan also impacts the credit score. If you have taken the loan for a longer duration and have paid the EMIs on time, it will have a positive impact on your credit score.

Multiple Enquiries

With a lot of players in the market providing competitive offers, it is but natural for you to shop around to get the best deal. Availing a loan is like the purchase of consumer durables in the present days. You tend to go from lender to lender in search of the best deal. The result will be multiple enquiries reflecting in your credit report.

At present, the trend with the lending institutions is to check the credit report before encouraging a proposal. So, every lender to whom you put forward your request will be checking your credit score.

Your proposal may not be entertained by the lender due to a bad score or you may not be happy with the offer provided by the lender or may not be convinced with the terms and conditions laid down by the lender. Barring these reasons, the only fact that stands out is that there are multiple enquiries reflected in the credit report, which in turn will bring down the credit score.

The question that arises in the lender's mind is that why you have approached so many lenders. To avoid this situation, it is better you be aware of your credit score before you approach any lending institution for a loan.

If you find there are some entries that are not pertaining to you, you will have to take up the matter with the CIBIL grievances redressal forum and get it sorted. There are cases where dues for a credit card which you do not hold are recorded in the credit report. Obviously, you are not aware of it and so would not have made the payment. However, the credit report shows that you have defaulted the payment. This kind of wrong entries are the ones you should be looking into at periodical intervals to ensure that your score does not go down for no fault of yours.

The second step before you approach a lender for a loan is to set your mind on the best offer and decide the lending institution from whom you intend to avail the loan. For this, you have various websites which provide the comparative data of various banks/financial institutions. Study the various offers thoroughly to decide on the best deal before approaching any lending institution for a loan.

CIBIL Score Card and What it Means

CIBIL score is calculated on the compilation of all the information available in the credit report. If you have loans and have a credit card, then definitely you will a credit report too. The credit report contains all the information about your debt accumulation, payment of bills on time, a loan that has gone bad, duration of an EMI delay, etc.

The range of the scores that the credit bureau arrives at after compiling the information ranges between 300 and 900. The closer you are to the 900, the better will be your credit profile. CIBIL score is an indicator of your creditworthiness.

The table below will give an insight into the range of scores and its implications:

CIBIL Score Implications

Credit score between 700 and 900

  • This is considered a very good score. It is an indication of your financial discipline and credit health.
  • The score of this range infers that you have been making the payment of loan and credit card dues promptly.
  • The debt accumulation is not very huge, and you do not completely depend on credit card and loans to manage your expenses.
  • A score of this range gives access to loans and credit cards as you will be considered as a low-risk borrower by the lending institution. The banks/financial institutions are on the lookout for a greater number of low-risk borrowers and so it will not be difficult for you go get a loan.

Credit score between 700 and 750

  • This range of score is also considered good. This is the benchmark level that the lenders have set to accept a proposal.
  • Despite the benchmark level compliance, the banks/lending institutions will have to carry out further appraisals to evaluate the creditworthiness if your score is in this range.
  • If the appraisal results and the credit score put together are satisfactory, a favourable credit decision will be taken.

Scores between 550 and 700

  • A score of this range is not considered favourable since it indicates some irregularities in making loan and credit card payments.
  • You might have missed out on the EMI due date on some occasions, which is a reason enough to bring down your credit score drastically.
  • To ensure that the score does not fall due to a few miss outs, keep a track of the due dates and make the payment promptly.
  • This situation arises only if you have several loans falling due on different dates or several credit cards that fall due on different dates.
  • Make it a practice to diarise the due dates and make the payment promptly.

Scores between 300 and 550

  • A score of this range will be a result of negative remarks like write off, settled, or loan past due.
  • These remarks depict that you are unable to manage your payments since you have a financial burden beyond your limits.
  • The lending institutions will view you as a prospective defaulter if your credit score is in this range, and hence, your proposal will not be entertained.

FAQs - CIBIL Report

How to check the member and account details in a Credit Report?

You will have to draw a CIBIL score and CIBIL report to check the member and account details. The CIBIL report will contain your credit history which will give all the details of the kind of loan, the lending institution, the loan sanctioned amount, overdues and the outstanding balance in the loan accounts, the status of the loan accounts and credit cards, etc.

How does one read a CIBIL Report?

  • The credit score calculated based on the account and inquiries details present in the credit report ranges from 300 to 900. A score in the range of 700 to 900 is considered ideal.
  • You will have to draw a credit information report which will contain information about your personal details, contact details, employment details, the loan details, and the enquiries details.
  • Personal information comprises of your name, date of birth, gender, identification numbers like the Voter's ID number, PAN number, etc.
  • The contact information comprises of your telephone number, present, and permanent address
  • The employment information comprises of your monthly or annual income as reported by the lending institutions.
  • The account information comprises of all the credit details like the credit facilities, name of the lending institutions, type of facility, sanctioned amount, account number, date of opening, date of last payment made to the loan account. The record for the last 3 years will be present in the report.
  • Enquiry information comprises of the number of times a credit report has been accessed every time you approach a lending institution for a credit card or a loan, your credit report will be accessed by the lender. This will be recorded in the enquiry section of the credit report.

Do the details of loans for which one has stood as a guarantor reflect in the credit report and if so, why?

When you stand as a guarantor for a loan, you would have accepted to honour the obligation when the principal borrower fails to make the payment. So, the details of the loans for which you are a guarantor will appear in your credit report and if the principal borrower defaults payment, then it will affect your credit score as well.

The details of the closed account for which even NOC has been provided is reflecting in the credit report. How can this be rectified?

The details are still appearing in the credit report since the lending institution has not provided the closure details to the Credit Bureau. This matter can be taken up with the CIBIL Grievances Redressal Forum for rectification. As per the Credit Information Companies (Regulation) Act 2005, no data can be modified by the Credit Bureau without obtaining confirmation from the lending institutions.

Are there any fees stipulated for drawing a credit report?

All Credit Bureaus must provide a CIBIL Report without any charges once in a year as per the RBI guidelines since January 2017. If you draw a credit report more than once, there will be a fee charged by the Credit Bureau.

What is the minimum credit score required to avail a loan or credit card?

The benchmark level stipulated varies as per the credit policies of the lending institutions. However, a score between 700 and 900 is considered ideal for accepting a loan proposal or a credit card request. However, some card issuers may require a minimum score of 750.

What are the requirements to calculate a credit score?

The banks and other financial institutions provide a report of the credit facilities and the payment behaviour of their customers on a monthly basis. The credit score is drawn based on the information provided by the lending institutions.

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