Are you planning to take any loan? Are you looking for a loan at a lower interest rate? Are you wanted to make sure it is approved and processed quickly? This all depends on your credit score or CIBIL score. A better credit score can help the things you want most – like best loan rates in the market and quick processing and disbursement of the loan. Now the question is what is a credit score? Who is maintaining this score for me and on what basis? What should I do to score high? We will discuss about these entire questions in this blog.
A credit score is a statistical number that evaluates a consumer’s creditworthiness and is based on credit history and this credit history is maintained by CIBIL.
What is CIBIL or CIBIL Score?
CIBIL (Credit Information Bureau (India) Limited) is the most popular Credit Bureau or Credit Information Company, licensed by Reserve Bank of India. There are three other companies also licensed by the RBI to function as credit information companies; Experian, Equifax and Highmark but the CIBIL score is the most popular in India. CIBIL is engaged in maintaining the records of all the credit-related activities of companies as well as individuals including credit cards and loans. CIBIL maintains credit files on 600 million individuals and 32 million businesses. The registered member banks and several other financial institutions periodically submit their information to CIBIL. Based on the information and record provided by these institutions, CIBIL issues a CIR (Credit Information Report) as well as a credit score.
CIBIL was established in 2000 in order to bring greater efficiency and transparency in the credit space. TransUnion International (a global credit bureau) and Dun & Bradstreet (a global provider of credit information) are technical partners of CIBIL in India. It has an ISO 27001 rating, which is the highest security standard in the world. Shareholders in CIBIL include TransUnion International, ICICI, SBI, IOB, HSBC, Union Bank of India, Bank of India, Bank of Baroda, and Allahabad Bank.
CIBIL India is part of TransUnion, an American multinational group. Hence credit scores are known in India as the CIBIL Transunion score. CIBIL Score is a 3-digit numeric summary of your credit history, rating, and report, and ranges from 300 to 900. The closer your score is to 900, the better your credit rating is and the closer your score is to 300, you may find difficult to get loan and credit card. An important point to be noted is that CIBIL is a database of credit information. The credit bureau does not make any lending decisions. It only provides data to banks and other financial institutions, who use it to filter applications for loans and credit cards.
Importance of CIBIL Score/Role of CIBIL Score:
India is a growing and developing country and the loan market in India is witnessed major changes. The importance of CIBIL score plays a very important role in the country’s economy. When someone approaches a bank or a financial institution for a loan, the lender first checks the applicant’s CIBIL score and report. If the CIBIL score is low, the bank may not even consider the application further. If the CIBIL score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy. The CIBIL score works as a first impression for the lender. Interested borrowers can also check their CIBIL score online and find out what their financial standing is. This gives them an idea about how much they can borrow and encourages them to maintain a good financial history. The credit bureau has brought financial literacy and encouraged people to maintain good financial records.
CIBIL scores are calculated on the basis of at least 6 months of historical financial data of an individual. The data is fed into an algorithm with 258 different variables; each with a different weightage. Typically, a score of 700 is considered good.
How to improve your CIBIL score?
A good CIBIL score increases your chances for an easier credit approval so it is good to maintain it. Here are some tips to improve your CIBIL score.
- Repay your Credit Card bills on time
- Don’t miss your loan EMIs
- Avoid taking on too much debt at one time. The number of loans you apply for, during a fixed time period should be minimal.
- It is better to have the right combination of secured loans (such as Home Loan, Auto Loan) and unsecured loans (such as Personal Loan, Credit Cards) of a long and short tenor to build a good credit score. Too many unsecured loans may be viewed negatively.
- Monitor your co-signed, guaranteed or jointly held accounts. Your joint holder’s (or the guaranteed individual) negligence could affect your ability to access credit when you need it as you are also equally liable for missed payments.
- Monitor your CIBIL score and Report regularly to check for any inconsistencies. Sometimes a loan you may have repaid may not have been updated on the credit report, which could have a negative impact for you. If you notice such errors, get them rectified instantly.
- Build up a good history gradually: Debt is, often, essential. But the idea is to take the right kind of debt, use it prudently and service it well.
CIBIL Score Range:
A CIBIL score ranges from 300 – 900. CIBIL score of 750 and above are considered as responsible borrowers. Here are the different ranges of a CIBIL score.
- NA/NH: If you have no credit history, your CIBIL score will be NA/NH which means it is either “not applicable” or no history”.
- 350 – 549: A CIBIL score in this range is considered as a bad CIBIL score.
- 550 – 649: A CIBIL score in this range is considered as fair.
- 650 – 749: If your CIBIL score is in this range, you are on the right path.
- 750 – 900: This is an excellent CIBIL score.
CIBIL score is your financial health checkup report. It shows that how much financial liability you have and how fairly and easily you are paying all your debts. If you have a good CIBIL score, you can get a loan when you are in need and if your score is not good, no one will consider you. As you concern about your physical health, you should also take care of your financial health for the long run. A disciplined life can take you a long and peaceful life.