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What is CIBIL?

Credit Information Bureau (India) Limited or CIBIL is a Credit Information Company (CIC) founded in August 2000. CIBIL come to play a critical role in India's financial system. CIBIL collects and maintains records of an individual's payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores, which are provided to lenders in order to help evaluate and approve loan applications.

What is the CIBIL TransUnion Score?

The CIBIL TransUnion Score is a 3 digit numeric summary of your credit history. The Score is derived by using the details found in the "Accounts" and "Enquiries" sections on borrower's Credit Information Report (CIR) and ranges from 300 to 900 points. The closer the Score is to 900, the more favorably loan application will be viewed by a lender. The Score plays a critical role in the loan approval process.

What is the meaning of the Score?

An individual's Credit Score provides a lender with an indication of the "probability of default" by the individual based on their credit history. What this means in simple English is that the Score tells a lender how likely you are, to pay back a loan (should the lender choose to sanction your loan) based on your past pattern of credit usage and loan repayment behaviour. The closer you are to 900, the more confidence the lender will have in your ability to repay the loan and hence, the better the chances of your application being approved.

How beneficial it to maintain a good score?

In a bid to get a good loan deal, it is important to maintain a good CIBIL Score. Some of the benefits of a good credit history and good score are speedier access to credit objective decisions, negotiate for better credit terms, and build reputational collateral for the future. 

What are the major factors that affect the Score?

1. Late payments or defaults in the recent past: Payment history has a significant impact on Score. Hence, if somebody missed payments on any existing loans, over the last couple of years, his Score is likely to be negatively affected because it indicates that that person having trouble servicing his existing obligations.

2. High Utilization of Credit Limits: While the balances of loans will only reduce over time as payments are made, one must be diligent about making timely payments on his credit cards. While increased spending on credit cards may not necessarily negatively affect Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact the Score. It is always prudent to not use too much credit.

3. Higher percentage of Credit Cards or Personal Loans: A higher concentration of home loans or auto loans (commonly known as Secured Loans) is likely to be more favourable for Score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, it's also by far the most expensive forms of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest.

4. Behaving "Credit Hungry": If someone has made many applications for loans, or have recently been sanctioned new credit facilities, a lender is likely to view that application with caution. This "Credit Hungry" behavior indicates debt burden is likely to, or has increased and borrower is less capable of honoring any additional debt and is likely to negatively impact his Score.

What information does a CIBIL Credit Information Report (CIR) contain?

A CIR contains month on month records of an individual's loan or credit card repayment. It includes personal information such as name, gender, date of birth, address and identification numbers like PAN, passport number, telephone number and voter ID. Account related information such as type of loan taken, amount of loan, current balance outstanding, overdue amount (if any), number of days a payment is overdue (if applicable), account opening date, date of last payment and month on month record of up to 3 years of payment history is also included. Enquiries related information is also captured in CIR, when a lender requests for CIR based on credit application from an individual.

Do Credit Information Companies (CIC) maintain a defaulters list?

CIC does not specifically maintain a defaulters list. It collects all the credit information related to borrowers, irrespective of whether they are making payments on time or not.

How CIBIL score affects loan application process?

The CIBIL TransUnion Score plays a critical role in the loan application process. After an applicant fills out the application form and hands it over to the lender, the lender first checks the credit score and credit report of the applicant. If the credit score is low, the lender may not even consider the application further and reject it at that point. If the credit score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy. The credit score works as a first impression for the lender, the higher the score, the better are the chances of the loan being reviewed and approved.

The decision to lend is solely dependent on the lender and CIBIL does not in any manner decide if the loan/credit card should be sanctioned or not.

What does it mean when the Score is NA or NH?

A Score of "NA" or "NH" is not a bad thing at all. These mean one of the below:

a) Absence of a credit history or do not have enough of a credit history to be scored.

b) Do not have any credit activity in the last couple of years

c) All are add-on credit cards and have no credit exposure 

It is important to note that while these Scores are not viewed negatively by a lender, some lenders' credit policy prevents them from providing loans to an applicant with Scores of "NA" or "NH" (applicants with no credit track record).

How to Increase your CIBIL Score?

Here are a few steps:

Step one: Know your credit profile Go to Credit Information Bureau of India (CIBIL) web site and pull out your credit report. Online authentication process ensures that you need not stand in the que. The moment you get the report, go through it. Check the crucial number your credit score. Also, check if there are some glitches in your credit report. Sometimes incorrect records spoil the credit score. Say a bank has not reported closure of a loan account as the borrower prepays the entire loan outstanding. If such a loan is shown as "settled" in your report, you should approach the bank, obtain a no dues certificate from the bank, and submit it to the credit bureau. The credit report thus can be updated. If all is well, but your credit score is low, it is the time to take next step.

Step two: Switch in time. Ensure that you pay all your loans due on time be it credit card outstanding or an EMI on the loan. Better ask your bank for setting up an ECS mandate to collect the loan amount on the due date. This ensures that your loans are paid on time. Always maintain sufficient balance in your bank account. Part payments would not help they typically bring down your credit score. This is an important step towards improving your credit score.

Step three: Under one umbrella If you have too many loan accounts better consolidate the smaller ones into a loan account. Approach the bank and give details on all these loans and you can transfer the balance outstanding. After you consolidate your loans, close credit cards with small credit limit. It is better to keep two credit cards with credit limit of Rs 2 lakh each than four credit cards with Rs 100,000 each.

Step four: Superfluous credit You should never have too much of personal loans and credit card outstanding. It brings down the credit score. A home loan, however, won't impact your credit score. If you have too many unsecured loans try to repay them quickly one after another. If possible get a loan against property or loan against shares to pay off the high cost unsecured debt.

Step five: Credit limit Never avail of entire credit limit. If you have two credit cards with credit limit of Rs 2 lakh each, and you are spending Rs 250, 000 on cards, try to spend it Rs 1.25 lakh each. If you spend Rs 2 lakh on one card and rest on the second card, it appears that you are using your credit limit on first card. This brings down your credit score. And more importantly never overspend after all you have to repay it. 

Step six: Being scrupulous It is all simple till here. Now begins the uphill task. Do not stand as a guarantor to anybody and everybody. Be selective and in that case too, conduct due diligence on the borrower. If the borrower defaults, your credit score goes down. Many a time we get calls from banks for personal loans and credit cards' do not apply for each one of them. As I told you earlier too many inquiries in a short span of time are seen as a credit-hungry behaviour and brings down credit score.

Step seven: Settlements If you have long pending disputes with banks, don't accept a settlement. Such settled loan accounts spoil your credit score. Better sit with the bank and try to solve it amicably.

Be open to disagreements and face the weaker links in the dispute. to know more about "loan" read


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