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CIBIL stands for Credit Information Bureau (India) Private Limited. It is India's first Credit Information Company. It maintains records of all credit- related activity of Individuals and Companies including Loans and Credit Cards. The records are submitted to CIBIL by registered member Banks and other Financial Institutions on a periodic basis usually monthly basis. Based on this data, CIBIL issues a Credit Information Report or CIR and a Credit Score.

Importance of CIBIL:

It gives potential lenders a detailed idea of customer's past and current borrowings and repayment history. It ensures greater transparency in the Loan Approval process as customers and lenders have access to the same Credit Information.

What is Credit Score?

Based on the Information provided by the banks and Financial Institutions, CIBIL issues a "Credit Score". This Score ranges from 300 to 900. Average score is 750. If your CIBIL Score is above 750 then the chances of your Loan Approval increases. The Higher your Score, the better are your chances of being Approved for Loan.

People with good score are at an advantageous position as they can bargain with the Bank to provide them Loan at a Lower Rate of Interest.

Also Private Banks generally provide Loan to the people with a low score but such people are charged High Rate of Interest as compared to the people with High Score.

People with Score as "-1" are those who have not taken any loan till now.

People with Score as "0" are those whose credit history is available only upto a period of less than 6 Months in total.

What Factors affect CIBIL Score?

Number of Hard Enquiries:

A Hard Enquiry is one when a potential lender accesses your CIR to determine whether you qualify for a Loan or not. Multiple Hard Enquiries without corresponding Loan approvals indicates that the person is in need of credit and is applying to multiple lenders in order to increase the chances of securing it. The Hard Enquiries can lower down the CIBIL Score.

Payment History:

If you use a credit card and/or have taken a loan in your name and you pay the minimum amount or the interest repayment after the due date, then your CIBIL Score falls. Consumers who make late payments or default on their EMIs or dues will earn a bad credit and gain a negative impact on their CIBIL Score. Even if you default on your payment or dues once, the effect shall probably affect your CIBIL credit score  

Credit Limit reached frequently:

If the spends on your Credit Card frequently reach the credit limit, it will then lead to a constant high repayment burden and that accepting your loan application will negatively affect your repayment capability. Thus considering this factor, CIBIL may keep you in a lower CIBIL bracket so as to inform the lenders of your high credit utilization.

The author can also be reached at komal.aggarwal14@gmail.com

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