CIBIL Credit Score for Credit history & loans

What is CIBIL...?

Credit Information Bureau (India) Ltd; CIBIL is India’s first Credit Information Company, also commonly referred as a Credit Bureau. CIBIL collects and maintain records of individuals’ and non-individuals’ (commercial entities) payments pertaining to loans and credit cards. These records are submitted  by banks and other lenders on a monthly basis; using this information a Credit Information Report (CIR) and Credit Score is developed, enabling lenders to evaluate and approve loan applications. A Credit Bureau is licensed by the RBI and governed by the Credit Information Companies (Regulation) Act of 2005.

Applying for a Loan...?

Did you know all banks check your Credit Score before approving your loan application? 80% OF THE LOANS APPROVED ARE FOR INDIVIDUALS WITH A SCORE GREATER THAN 750.

Your credit Score...

A Credit Score (including Credit Information Report-CIR), is your detailed credit history and full evidence of your credit worthiness. Based on your credit history, CIBIL gives you a score between 300 and 900. The higher your score, the greater are your chances of loan approval. Before you apply for a Home Loan, Car Loan, Personal Loan or a Credit Card, check your Credit Score.

Why is the credit score important for getting the loan sanctioned...

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 your 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.
There are 4 major factors that affect your score:
  1. Payment history
    Making late payments or defaulting your EMIs or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.
  2. High utilization of Credit Limit
    While increased spending on your credit card will not necessarily affect your score in a negative manner, an increase in the current balance of your credit card indicates an increased repayment burden and may negatively affect your score.
  3. Higher percentage of credit cards or personal loans (also known as unsecured loan)
    Having a balanced mix between the secured loans (such as Auto, Home loan) and unsecured loan (such as Personal loan, Credit Card) is likely to have a more positive affect on your score.
  4. Many new accounts opened recently
    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 increase, which will negatively impact your score.

Details of the CIBIL TransUnion Score 2.0.

The CIBIL TransUnion Score 2.0 is a new, updated version of the Credit score which has been designed keeping in mind the current trends and changes in the consumer profiles & credit data. Banks are gradually switching to the new version and you may find a difference in the new version when compared to the earlier version (i.e., the score 2.0 may be lower than the earlier version). Please note, the score currently available to you is the earlier version. However, the difference in the Credit Score does not impact the credit decisioning during the Loan approval process as both the versions of the score may have a different score eligibility cut off while processing the loan application.
For example, if your Bank earlier used to sanction loans/credit cards to individuals with a credit score of 800 and above it may now lower its score cut-off, if it has switched to the new version.
The CIBIL TransUnion Score 2.0 also introduces a risk index score range for those individuals who have a credit history of less than 6 months. These individuals were categorized under the category of “No History- NH” in the earlier version. The score range is from 1-5, with 1 signifying “high risk” and 5 signifying “low risk”.
Score 2.0 summary and interpretation:
Score & Index             Interpretation (i.e, for whom does this score reflect)
NA or NH
·          Individual has no credit history & it has not been reported to us.
·          Individual has no credit history but has only been enquired upon
·          Individual has credit history but none that is reported in the 24 months prior to enquiry.
·          Individual has a credit history but it has not been reported to us in the last 24 months.
·          Individual has a credit history which is less than 6 months, hence a risk Index is returned
·          Higher the index, lower the risk
·          An individual with a credit history of more than 6 months (in the last 24 months)
·          Higher the score, lower the risk

How to improve credit score....?

You can improve your Credit Score by maintaining a good credit history. This will be viewed favorably by lenders and it can be done with 6 simple rules:
  1. Always pay your dues on time
    Late payments are viewed negatively by lenders
  2. Keep your balances low
    Always prudent to not use too much credit, control your utilization
  3. Maintain a healthy mix of credit 
    It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.
  4. Apply for new credit in moderation
    You don’t want to seem Credit Hungry; apply for new credit cautiously
  5. Monitor your co-signed, guaranteed and joint accounts monthly  
    In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder’s (or the guaranteed individual) negligence could affect your ability to access credit when you need it
  6. Review you credit history frequently throughout the year 
    Purchase your CIR from time to time to avoid unpleasant surprises in the form of a rejected loan application.
Take note of these points and get going.