Financial frauds are well known from time immemorial. It is common for those who get loans to default on their loans, and much more common for banks to register losses over the period. What was once a safe and secure industry is now in turmoil because of non-performing assets and what not.It was for this very purpose that the CIBIL Score was launched.
What is CIBIL full form- CIBIL Meaning?
The Credit Information Bureau India Limited or CIBIL as it is commonly called, was India’s first credit information and reporting company. Formed in the mid-2010s and a part of the TransUnion (an American multinational group) that is also involved in the same business worldwide.
Functions of CIBIL
To put it simply, CIBIL collects data from individuals and companies and maintains record of every loan taken, every rupee borrowed. The CIBIL records everything you do through a bank. Various financial institutions and financial service providers use this data to assess the creditworthiness of their potential customers. These ‘points’ are commonly referred to as a CIBIL Score. So for example, if I go to the State Bank of India to take a loan, they would first reach out to CIBIL to ascertain what my score is. I would be given the loan only if my CIBIL Score was found to be satisfactory. Else, I would be left disappointed.
What is CIBIL Transunion Score ?
The CIBIL Transunion Score is generally a 3-digit number that ranges between 300 and 900. The perfect score would be a score of 900. This is extremely rare. The higher your score, the better will be your credit worthiness.
CIBIL Score Calculation
What is Credit Information Report ?
The CIBIL tracks your score through various reports submitted to it by banks on a monthly basis. These are maintained in a separate database for every consumer, called a credit information report.
Continuing with our example, if SBI did give me the loan, they would report to CIBIL on a monthly basis. They would inform CIBIL on how my EMI payments have been. What if I had defaulted? That is also informed! By aggregating all this information, CIBIL would complete its Credit Information Report on me.
Why CIBIL Score or Credit Score is important?
It is also important to remember that the CIBIL Score or Credit Score not only determines whether you get the loan or not – but also the terms and conditions of a loan.
Who uses CIBIL Score?
Banks and financial institutions use CIBIL Score.If you have a very good CIBIL Score, you would probably get a loan with a 7% interest rate, while somebody with a very bad CIBIL Score might only get the same loan at 15%.
How is your Credit Score calculated?
This is extremely interesting. We now understand how important the CIBIL Score is and how it could change your life. It is also important that we understand how it is calculated. The first thing we would need to remember is that there is no fixed formula. The CIBIL Score works through an algorithm. This algorithm factors everything CIBIL knows about your loan repayment and credit mannerisms and comes up with a 3-digit score. As discussed previously, this score could be anything between 300 and 900 points.
Some of the important things that CIBIL considers while evaluating your score are:
- Credit Utilisation – CIBIL will check how much credit you are utilising. It is important to remember that no credit does not necessarily mean a score of 900. We need to understand that CIBIL Score monitors your creditworthiness and repayment efficiency. That means you need to exhibit you are a loyal borrower. Thus, only those with credit or loans are eligible for a CIBIL Score. Therefore, the best idea to get a high score is to have credit and repay your credit on time.
- Defaulting – This is fairly self-explanatory. The CIBIL factors into its equation situation where you have defaulted. This includes late repayment of EMI, unpaid interest or principal etc.
- Balance of Credit – CIBIL also considers if the customer has a good balance of credits i.e. he should not have all long-term loans or all short-term A good balance is essential to get a high CIBIL score.
Other Factors affecting Cibil Score
There are others factors also which affect your CIBIL Score
- If you are having the habit of applying for many loans/credit cards it will affect your credit score even if you are not actually availing the loan/card. Apply, only if you really need it.
- If you are a guarantor for a loan to your friend/relative and if he default on repayment, this can affect your credit score.
Disadvantages of CIBIL Score
The ultimate question that should strike your mind now is – if it is all that rosy, how come we have so many non-performing assets today? Good question! Like all the regulators, CIBIL is not perfect.
CIBIL Score has its disadvantages too.They rely very heavily on the information given to them by banks. They have no independent source of information to verify their facts from. Thus, it is almost impossible for them to cross-check the data given by banks. Everything has to be taken at the face value! This could affect a customer’s score. If a customer had repaid a loan on time, but the bank failed to recognise the payment in his account, they would report him as a delinquent at the end of the month. This could mean the customer’s CIBIL score gets affected and he cannot avail another loan till he rectifies this.
A tighter noose and better regulation by CIBIL could help avoid these issues for the honest borrower.
How can you check your Cibil Score by PAN Card- Free?
It is extremely simple to check your CIBIL Score by PAN card and it is free
- Go to cibil.com
- Create a free account with your PAN card and Email id
- Fill in the requisite details with respect to your personal information
- The CIBIL Score will be mailed to you almost immediately
Super simple right? If only more people understood how important it was and how easy it is to check!
What is a good CIBIL Score?
Once you have checked your score, the next step is self-evident. Analysis. Do you have a good CIBIL score or not? Will you get a loan or not? If yes, will the terms be beneficial to you or not?
It is generally believed in the banking circles that a score of anything over 750 is considered good. If you got a score below 750, it is time to clean up your act and work on bettering your scores every month. Keeping a regular check on your scores is essential.
Various Loans and their impact on CIBIL Score
Will Gold Loan affect CIBIL Score ?
It is generally believed that it is better to take a gold loan than a personal loan if the situation beckons. The idea is that a gold loan will not affect CIBIL scores as much as any other loan. Repayment of a gold loan is as critical, even though most players in the gold loan system are unorganised, and do not have the requisite documentation to prove a default.
Credit Cards–Credit Cards are one of the most common instruments that directly hit your CIBIL scores. Most of the population today have grossly misunderstood how a credit card works. They think a credit card is meant to be used as a loan. The idea is, a credit card can be used to avail a short-term credit, for approximately 45 days. The card issuer or bank will levy an interest on the card if the credit is not paid back within 45 days. In order to avoid this, the best practice is to repay without incurring any interest expense. Needless to say, an increase in defaults will hit your CIBIL scores.
Home Loans/Car Loans – Home loans and car loans are loans taken against collateral. This is usually a house or car, respectively. CIBIL scoring is not as rigid against a repayment of a home loan or car loan because of the value of the security involved. This does not mean the CIBIL Score does not get affected if you default. It only means it will not get affected as badly as it might have if you defaulted on a credit card borrowing.
What is the best CIBIL Score to get a Credit Card?
Anything close to 900 or above 750 is the best CIBIL score to get a credit card.
What is a good CIBIL Score for Home Loan or Car Loan?
CIBIL Score above 700 will make you eligible to get home loan or car loan, but the lender further checks your worthiness. The closer you are to 900, easier it is to get a home loan or car loan.
How Can I improve my CIBIL Score or Credit Score ?
To improve your CIBIL or Credit Score,the first step is, clean up your mess. If you have a lot of bank accounts, close most of them. The general idea is, you do not want more accounts open than you can monitor. Start repaying your loans properly and on time. If required, have a standing instruction with your salary account, so you won’t forget a due date. Your CIBIL Score will improve over time. During this period, if it is critical for you to take a loan, you will only get one with a higher interest rate. You might also require security.
Best practice is to avoid taking any new loans till your CIBIL Score increases to a respectable level. Also, use your credit cards only up to 35%. You might have a limit of up to rupees one lakh, but that does not mean you need to max out your credit card at the first chance you get. Though you pay your credit on time, a maxed out credit card sends the wrong message and will affect your CIBIL Score.
You can also file an appeal with CIBIL if you find anything disputable on your credit information report. For example, if you see a credit card there that you do not own, it is time for you to appeal to CIBIL.
We can also use various other varied instruments. One such instrument that helps to reduce our credit footprints, is taking a loan against FD instead of a personal loan. Using your savings to pay for your education instead of taking an educational loan is also a great way to increase your CIBIL scores.
Why online portals like Paisabazaar or Bankbazaar are offering you free Credit Score?
Though you might think CIBIL is the only company maintaining your credit records, it is not true. There are various other agencies that dish out credit scores at the snap of a finger. With your PAN information and AADHAR, these agencies will be able to track all your credit activities and have them at their fingertips. This is why you will see credit scores offered by everybody from bankbazaar, paisabazaar to car retailer websites.
Can I get my CIBIL Score from bank website like ICICI, HDFC or SBI?
Yes, you can get your CIBIL score for free if you are a customer of banks like ICICI, HDFC or SBI. Also you do not have to fill in any details like pan card etc. to get your CIBIL Report.
Following are the steps to get CIBIL Report from ICICI bank
- Log on to ICICI bank website
- Go to personal banking login
- Check for exclusive offering in menu bar
- Click on dropdown
- Check for CIBIL Report
Please let me know, how to get it from other banks as I have account in ICICI bank only.
As a consumer of the financial services industry, your duty is to ensure that you are completely safe from default and have a good CIBIL Score.One way to do that is to check your liquidity periodically. Also, you can look for various cheaper and less burdensome options instead of taking a personal loan. In the long run, information is wealth in the country. Our credit information is available like hot donuts, and it will not make any sense to cross our financial service providers.