CIBIL Score for Car Loan
A good CIBIL score is demanded by any bank or financial institution to give you an approval on your Car Loan. Here is everything that you need to understand about Car Loans and CIBIL score.
What is CIBIL Report?
Banking and other financial institutions consider the CIBIL report as the most important factor in determining if an individual is eligible for a loan or not. It can be likened to a school report card that carries all the information about how you manage your finances.
Every time you avail any credit, be it a loan or a Credit Card, the information about the same is sent to authorised Credit Information Bureaus. In addition to this, any information about rejection of loans, the repayment made towards the loan, and defaults are also reported to the bureaus. Based on this, a detailed credit report is created each year to help any lending organisation to understand your financial behaviour before giving you any credit in the future.
In India, the most widely accepted Credit Information Bureau is CIBIL. This is an acronym for the Credit Investigation Bureau of India Limited.
Details about CIBIL and Credit Information Report
The concept of a credit bureau was introduced in India in the year 2000. Known as CIBIL or Credit Information Bureau Limited earlier, the name has now been revised to TransUnion CIBIL. This is the leading credit information institution in India, which maintains information of customers across the globe.
This company has more than 2400 members, which includes banks, NBFCs, and other financial institutions. There are currently detailed credit records of more than 550 businesses as well as information. CIBIL was formed as an organisation to create the best possible information solution that not only helps financial institutions mitigate any risks but also provides consumers with the advantage of easier access to necessary credit.
Every year, a CIBIL report is created for individuals based on their credit history. Each individual is given a three-digit credit score which is based on the financial transactions that take place through the year. You can get one CIBIL report each year for free as per the regulations. If you want your CIBIL report more than once, you will have to avail a membership-based on your requirement and budget.
Details Included in Your CIBIL Report
Besides the three-digit credit score, there is a lot of information which is provided in the CIBIL report as mentioned below:
- The CIBIL score: This is a three-digit score ranging from 300 to 900 that is used by banks to evaluate any loan application. The higher this score is, the better are your chances of getting approval on your loan application. If your score is closer to 900, it means that you are a more reliable candidate to extend credit facilities to. If NA or NH appears before the CIBIL Score, it means that you have not availed any credit in the past or have not had any credit activity for several years.
- Personal information: Under this section, you have all personal identification details such as the name, gender, date of birth, etc., which is collected by CIBIL from various organisations. There is a section called Identification type which includes details of your PAN Card, Voter's ID, and Passport Number.
- Contact information: This section provides all contact information about the individual such as mobile numbers, telephone, and email address. Under the address category, you also have details that specify if it is your office address, your residential address, temporary address or permanent address.
- Enquiry information: Under this section, all the details about your past credit application is provided along with details like your date of application, name of the lender, the type of loan availed, and the quantum of the loan.
- Employment information: All the income and occupation details of the individual are available in this section. These details are as per the information provided by the customer upon opening new credit.
- Account information: This is the most important section of your CIBIL report. It provides detail accounts of all your Credit Card accounts and loans. You also have information about the lender of the credit facility. You will be able to check if it is a Home Loan, Car Loan, Credit Card, etc. It gives you detailed information such as the account number, whether the account is held individually or jointly, the last payment date, the loan amount, overdue amount, and so on. The most important information provided here is about the repayment made towards these loans. You can get information up to the last 36 months.
- Red box: In case there is a red box above any account detail, it is an indication that the section is disputed. The red box will be removed as soon as the disputed information is removed from the credit report. This is subject to the availability of this information from the lender.
Importance of CIBIL Report
A CIBIL report is the most important document for any individual or business that is looking for credit facilities. Your annual CIBIL report is not only important for the lenders, but has great value for you as well.
Some of the benefits of having a CIBIL report are as follows:
- Banks give you loans based on your CIBIL report: Any financial institution that you apply for any Credit Card or loan with, decides if you are eligible based on the credit report provided by CIBIL. It confirms details about the individual's income and employment. In addition to that, the details on the repayment made towards any credit facility are listed in detail. This tells the bank if the individual is creditworthy enough to extend credit to.
- You can check your eligibility for a loan: It is highly recommended that you do not apply for any loan where your chances of rejection are high. Multiple loans or Credit Card rejections also affect your credit score. One basic criterion for most financial institutions is your credit score. You can apply for loans based on your credit score and whether or not it qualifies you to get a loan. This increased your chances of getting an approval.
- You can check any wrong information: A regular check on your credit report is essential because it helps you ensure that the details provided are correct. In case there is any wrong information, you can raise a dispute through the CIBIL website. These disputed records are usually not considered towards the final CIBIL score and can, in some cases, also help you improve your credit score.
- You can take necessary measures to improve your CIBIL score: When you read your CIBIL report in detail, you are able to understand what is causing a low credit score. That way, you can also take necessary measures to rectify your financial behaviour and increase your credit score to get better credit facilities in the future.
Terms Used in CIBIL Report
Being able to read your credit score requires you to understand certain jargons and terms that are used.
Here are the common terms that your CIBIL Report may contain:
- AC or Asset Classification: As per RBI Guidelines, asset classification is done using the following terms:
- STD or Standard: All payments are being made within a period of 90 days. If the overdue amount exceeds 90 days, then the account becomes an NPA or Non Performing Asset.
- SMA or Special Mention Account: This is when the standard account is deviating towards a sub-standard account.
- SUB or Sub Standard: This is when the account has been an NPA for more than a year
- DBT or Doubtful: This is when the account has been sub-standard for more than a year
- LSS or Loss: This is when a clear loss is noticed in the account
- Actual Payment Amount: This is when the payment made to the lender is less than or more than the EMI Payable.
- Amount Overdue: This is when you have any outstanding amount to be paid to the lender.
- Cash Limit: This is specific to Credit Cards and indicates how much money you can withdraw using Credit Card.
- CN or Control Number: This is the report number that you will use when you raise a dispute.
- Collateral: This denotes the security provided to your lender at the time of availing a loan.
- Credit Limit: This is specific to Credit Cards and denotes the credit available to you on your Credit Card.
- DPD or Days Past Due: This information indicates the number of days by which the payment has been delayed. If XXX is displayed under DPD it means that the credit bureau has not received any information.
- EMI Amount: This denotes the EMI payable towards a loan.
- Enquiry: This is recorded each time you apply for any Credit Card or loan and the lender checks your credit information report (CIR).
- High Credit: This is specific to Credit Cards and shows the highest amount that has ever been billed towards a Credit Card or overdraft facility.
- Ownership: This section shows who is liable to make payments towards a Credit Card. There are four ownership types, namely single, joint, guarantor, or authorised user (in case of add-on cards).
- Repayment Tenure: This is the tenure available on your loan. This is denoted by payment frequency. For instance, if the payment frequency is monthly, then 120 denotes that the tenure is for 10 years.
- Sanctioned Amount: This is the amount that is disbursed to the user by the lender.
- Suit Filed or Willful Default: This is when the lender has already filed a suit against the borrower as per RBI guidelines. If there is no suit filed, the section will remain blank.
- Written Off Amount (Principal): This field indicates when the lender writes off the principal amount. According to this section, the total amount and the written off amount is the interest that is written off on the given account.
- Written Off Amount (Total): Whenever any loan amount is written off, it is necessary to consider the principal amount and the interest. This section shows the total principal and interest that is written off.
- Written Off and Settled Status: The changes that the lender may have made on the final loan agreement or terms are recorded in this section. It is denoted as a Restructured Loan, Restructured Loan (Government Mandated), Written Off or Post Settled based on the status of the loan. This section includes any extension on the tenure of the loan, the rate of interest, etc.
CIBIL Score for Car Loan
A Car Loan is provided by banks, NBFCs, and other financial institution to facilitate the borrower to buy a new car or a used car. In the case of most banks and financial institutions, the CIBIL score and the income of the individual is extremely important in determining whether a candidate is eligible for a loan or not.
What is a Credit Score?
Every time you apply for a loan or a Credit Card, the financial institution sends the details to a credit bureau. Based on the information provided by these institutions, your credit report is prepared and you are given a Credit Score. This credit score is a three-digit number which varies from 300 to 900. If your score is closer to 900, it means that you are more eligible for a loan and are a reliable candidate to extend any credit facilities to.
The credit score may also be denoted as NH or NA, which can mean any of the following things:
- You have never applied for a loan or Credit Card in the past
- Your credit activities have been dormant for several years
- There is no credit exposure and you are currently only making use of an add-on Credit Card
Some Reasons for a Poor Credit Score
There are some factors that affect your credit score. Making amendments to these factors can help you rectify your credit score and improve it over a period of time.
The primary factors affecting your CIBIL score are as follows:
- Your Repayment History: There is a due date for the payment of EMIs in case of loans or for making payments towards Credit Cards. If you consistently make late payments or have several defaults on your credit score, your CIBIL score is negatively affected. Even a single default made in your repayments can have a huge impact on your credit score.
- High Utilization of Credit: When you take too many loans or if the usage of your Credit Card increases, it also means that the burden of repayment increases. This automatically brings your credit score down.
- The Mix of Credit Availed: There are two types of credit facilities provided by financial institutions, namely secured and unsecured credit. Secured credit such as Home Loans and automobile loans require you to provide collateral against the loan while unsecured loans like Personal Loans and Credit Cards do not require any collateral. Having more unsecured loans will affect your credit score negatively. So, it is recommended that you have a good mix of the two.
Minimum CIBIL Score for Car Loan from Top 5 Banks
In order to be eligible for a Car Loan with most banks, a minimum CIBIL Score is necessary. With most banking institutions, a CIBIL score above 750 is required in order to avail a Car Loan. When your CIBIL score is higher, you also have the advantage of negotiating the interest rates and getting a better deal on your loan.
How to Get Car Loan with a Low CIBIL Score?
Although there is a minimum CIBIL score required in order to get your Car Loan, there are a few instances when a loan may be availed even with a low CIBIL score.
Here are a few tips to get a Car Loan even with a low CIBIL score:
- Get your credit report before applying for a Car Loan. In case it is low, try to improve the credit score before you send in an application for a Car Loan.
- Avoid making any other types of loan applications before you apply for a Car Loan. This keeps your credit history clean. You can also try to consolidate existing debts to increase your chances of getting a loan.
- Make a higher down payment on your Car Loan. You have the option of volunteering to do so, so that the loan amount becomes lower to fit into the eligibility criteria of the bank.
- Make sure you borrow as per your repayment capacity. Calculating your EMI before you apply for a loan will help you decide if you can afford a particular loan or not. If the EMI is less than 40% of your total income, your chances of getting an approval are higher despite a lower credit score.
- The best way to get a Car Loan when you have a low credit score is to provide additional collateral against the loan. You can provide Fixed Deposits, LIC Policies, and other financial assets as collateral. Usually, the car that you purchase itself becomes collateral against the loan. However, additional security increases the chances of approval.
How to Improve CIBIL Score and Credit Rating?
The best option to get a Car Loan or any other type of loan is to ensure that you have a good credit rating.
There are some practices that you can follow in order to ensure a better credit score:
- Clear your outstanding dues, especially your Credit Card defaults as they account for a major portion of your credit score. If possible, at least try to make minimum repayments towards your Credit Cards to increase your credit score considerably.
- Reduce your loan utilisation. In the case of Personal Loans and Credit Cards, avoid using the credit extended to you to its full capacity. Instead, use it as per your requirement and not excessively. Most financial advisors suggest that you do not use more than 30% of your credit limit on your Credit Card.
- Avoid making frequent cash withdrawals on your Credit Card. This is an indication that you do not have access to funds and are in some financial crisis. The cash withdrawal limit available on your Credit Card should only be reserved for emergencies.
- Make sure that you repay your EMIs on time. With Credit Cards, instead of only making the minimum payment towards the outstanding, clearing the whole amount on or before the due date is highly recommended. This is possible when you control your spends on loan.
- Check your credit report frequently. You have the option of getting one credit report each year with no added cost. Utilise this facility to check for any wrong information that may be recorded in your credit report. These disputes help you raise your credit score and must be resolved in time to make it easier for you to get loans in the future.
- Avoid foreclosure of your loans. If you have additional cash flow in a month, it is a much better idea to make partial prepayments on loan instead of foreclosing the loan completely. While you can choose to do so in order to avoid excessive payments towards the interest, it tends to lower your credit score.
- Have a good balance between your unsecured loans and secured loans. Having too many unsecured loans increases your repayment burden each month as these loans are usually provided at a premium interest.
- Avoid applying for too many loans at the same time. If you have any rejections on the loans that you have applied for, it does negatively impact the credit score. It is also an indication of financial distress.
- Ensure that you check your eligibility before you make any loan application. You have the option of checking the eligibility through financial tools like eligibility calculators that are available on the websites of most banks these days. This helps you limit the number of loan applications that you make. You can also increase the chances of getting an approval by applying for loans that you are definitely eligible for.
If I am just a guarantor for a loan, will it reflect in my credit report?
Yes. A guarantor provides security for a loan. If the borrower defaults on the loan, the credit score of the guarantor will also be affected. Therefore, this will be reflected in your credit report.
Why are the details of my add-on Credit Card appearing on my CIBIL report?
Even though the add-on cardholder is not liable to make any payments on the card, the details will still be recorded in the credit report. Any default in payment will affect the credit score of the primary cardholder and the add-on cardholder.
Why are some loans mentioned as outstanding even after they have been repaid completely?
There is a chance that the updated information has not been sent to CIBIL. According to the Credit Information Companies Regulation Act of 2005, a credit company cannot change any information in their database unless they get information from the concerned financial institution.
How do I raise a dispute on my CIBIL report?
You can log on to the official CIBIL website and raise a dispute online if there is any discrepancy in the information that is provided in the credit report. No
What are the fees payable in case a dispute is raised?
Customers can avail these services free and do not have to make any payments in order to resolve the dispute.
How many times can I access my credit report each year?
You have one free access to the credit report annually. If you need to check the credit report more than once you can avail a CIBIL membership and even get unlimited access to your credit report.
Will a Car Loan affect my CIBIL score?
A new loan usually reduces your Credit score slightly. However, making frequent repayments helps you increase your credit score and also increases your eligibility for a new loan.