UNDERSTANDING YOUR CIBIL SCORE

CIBIL (Credit Information Bureau (India) Limited) is a Credit Bureau or Credit Information Company. This company is engaged in maintaining the records of all the credit-related activities of companies as well as individuals including credit cards and loans. 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 is a credit information database and does partake in any kind of lending decisions. It provides data to the banks and such other lenders for quickly and efficiently filter the loan applications which they receive in the course of their business.

CIBIL offers three products viz. credit score, a credit report for individuals and credit report for companies:

Credit score

Credit score refers to a 3 digit numeric value which represents the creditworthiness of an individual. The creditworthiness ranges between 300 to 900 with 900 being the highest and 300 being the least. This score is computed with the help of the credit history of an individual. Banks and most of the financial institutions prefer extending credit to an individual whose score is 750 and more. Individuals with good credit scores are less likely to default on their loan payments.

Credit report

Credit report contains the credit information that CIBIL fetches from various financial institutions. This detailed report contains information about an individual’s history of borrowing and repayment routine, including defaults and delays. The important parts of this report are credit Score, individual’s personal information, employment details, contact information and account details.

Credit report for companies

Credit report for companies constitutes details about a company’s credit history. The several segments in a company credit report speak about potential lenders, existing credit which the company has, any pending lawsuits and outstanding amount. A good credit report is essential for approval of any loans, whereas a bad report could damage/reduce the chances of the loan being granted to the company.

What does my CIBIL Score mean?

Your CIBIL Score is one of the most important parameters considered by lenders before approving your loan application. CIBIL Score also provides lenders necessary insights into your credit history through past patterns of credit usage and loan repayment behaviour. It acts as a guiding principle for lenders, making the loan approval process faster. Any score greater than 750 is a good CIBIL Score and helps lenders in assessing and approving your loan application.

 

What is a CIBIL Score?

CIBIL Score is a 3 digit numeric summary of your credit history, derived by using details found in the ‘Accounts’ and ‘Enquiries’ sections on your CIBIL Report and ranges from 300 to 900. The closer your score is to 900, the higher are the chances of your loan application getting approved.

 

What are the major factors that affect my CIBIL Score?

There are 4 major factors that affect your CIBIL Score are:

PAYMENT HISTORY: Making late payments or defaulting your EMIs or dues (recently or consistently) will negatively impact your score.

 

HIGH CREDIT UTILIZATION: An increase in the current balance of your credit card indicates an increased repayment burden and may negatively affect your score.

 

MULTIPLE ENQUIRIES: If you have recently been sanctioned multiple loans and credit cards, then lenders will view your application with caution because this behavior indicates your debt burden has increased, which will negatively impact your score.

 

CREDIT MIX: Having a balanced mix between secured loans (such as Auto, Home loan) and unsecured loans (such as Personal loan, Credit Card) is likely to have a more positive effect on your score.

 

What does it mean when my CIBIL Score is ‘NA’ or ‘NH’?

A CIBIL Score of ‘NA’ or ‘NH’ is not a bad thing at all. These scores can mean any 1 of 3 things mentioned below:

a) You do not have a credit history or you do not have enough of a credit history to be scored i.e. you are new to the credit system.

 b) You have had no credit activity in the last couple of years.

c) You have all add-on credit cards and have no credit exposure.

It is important to note that while these credit scores are not viewed negatively by a credit institution, some lenders’ credit policy prevents them from providing loans to an applicant with credit scores of ‘NA’ or ‘NH’ (applicants with no credit track record). Hence, you may have a better chance of applying for a loan elsewhere.

 

Building and preserving a good CIBIL score isn’t a rocket science, however, people tend to mess up their credit usage which does a substantial harm to CIBIL scores. If you’re mindful of your own physical health and do everything for keeping yourself healthy, maintain a financial discipline and you would find that your financial health is healthy too.