Understanding your CIBIL Credit Score
CIBIL Credit score is a number calculated by a level analysis of an individual’s credit files for representing the credit worthiness of that person.
It is largely based on credit reports sourced from various credit bureaus. Lenders, like credit card companies and banks, use the credit score for evaluating potential risks that could arise from lending money to a person or to reduce losses because of bad debts. Lenders may also use the score to determine which customer is likely to contribute the most revenue.
Credit scores are not only limited to banks. Organisations like mobile phone companies, government departments, insurance companies and others, also resort to credit scores as and when required.
Credit Information Bureau (India) Ltd (CIBIL), is the premier agency of our country that provides credit scores. CIBIL collects financial data of a person, like loans and credit card information, from various financial institutions, including banks. The collected data, is then represented in the form of the CIBIL credit report, also often called a credit information report (CIR).
What is the CIBIL credit score?
The CIBIL credit score is a three-digit number ranging from 300-900 points. The number is derived from the CIBIL report via a complex statistical algorithm that factors in a person’s credit history. It includes borrowings, repayment pattern, repayment defaults and other relevant data regarding an individual’s credit worthiness.
The CIBIL score is calculated on the basis of a person’s historical financial data, for at least six months. The data is fed into an algorithm with 258 variables. Each variable is assigned an unique weightage.
What your CIBIL credit score means?
1. Less than one (-1): It means that you have no history in borrowing from any bank or financial institution.
2. From 300 till 600: You will be considered as credit risk by banks and financial institutions, if your score is within this range. You are unlikely to be extended loans or credit cards.
3. From 601 till 750: This is the intermediate range and will allow you to borrow from a prospective lender. Banks, nevertheless, may consider your overall financial health and other risk criteria for determining your true credit value. These include stability of employment, other sources of income, loan security and similar factors.
4. Above 750: Such a score means that you have good credit worthiness and getting a credit card or loan will not be a problem. A high credit score also means that you can leverage it to negotiate to get lower interest rates from lenders.
Why should you get a CIBIL credit score report?
A credit report can help you in many ways. Here are few of them:
1. Analyzing your correct financial position and making plans for future finances.
2. Be on top of borrowings and avoid debt traps at the same time.
3. Enjoy a great position to take decisions about new types of credit, and bargain with lenders to get the best possible interest rates.
4. Cultivate financial discipline. It helps in managing finances better than before.
Factors having a positive impact on your credit score:
1. Regular EMI repayments.
2. Timely repayment of credit card bills in full, rather than paying only the minimum amount every month.
3. Maintaining proper financial records.
4. Avoiding over-leveraging a good financial health.
5. Avoiding too many types of credit, like unsecured loans, within the family.
6. Properly utilising the approved credit limit.
7. Ensuring that the banks and/or financial institutions you are dealing with, submit proper information to CIBIL.
8. Maintaining proper records yourself, rather than entirely depending on financial institutions.
Factors having a negative impact on your credit score:
1. Excessive credit inquiries by banks and financial institution.
2. Cheque dishonours and bounces.
3. Irregular loan repayment.
4. Credit card defaults, making payments after the due date, or consistent part payments.
5. Excessive unsecured credit, like several personal loans.
6. Multiple rejections of applications for unsecured loans.
7. Default as a guarantor.
8. High utilisation of the sanctioned credit limit.
9. Errors in record keeping by the lender (you must alert the bank as soon as you notice any discrepancy).
Advantages of a high credit score:
1. Easy availability of loans. According to the CIBIL website, nearly 90 percent of all loan applicants having a score of over 700, are approved.
2. Prompt processing of credit card and loan applications.
3. Possibility of waiving or bargaining a lower processing fee as well as choosing a flexible repayment option, though not entirely guaranteed.
How to get your credit score?
You can follow these simple steps to know your credit score online:
1. Log on to the CIBIL website.
2. Fill up the online form that seeks details of your loan history and other relevant data, besides your name, age and address.
3. CIBIL charges a fee to reveal your credit score. After you fill up the form and accept the changes, if any, you will be directed to the payments page where you can pay the fee by your credit/debit card, net banking, or any other method.
4. Having successfully made the payment, you will land on the authentication page. Here, you will be asked five questions about your credit history. You need to answer at least three correctly for authenticating your identity with CIBIL. The report is usually emailed to the applicant within 24 hours following authentication.
5. In case of an authentication failure, CIBIL will send you a hard copy of the report by mail.
Ever since it was set up in 2000, CIBIL has emerged as the benchmark regarding credit worthiness in India. Of late, some international companies have started providing credit score services. But CIBIL largely holds a monopoly over the market.
Getting to know a credit score is important for the borrower as well as the lender. It helps you to gauge your real financial position. Armed with a good credit score report, you can bargain with banks and financial institutions for higher loans at a competitive rate of interest and payback tenure. There is not much awareness about credit scores in India as much in the West. But people are slowly waking up to it.
Also read: 7 Smart Ways to Increase Your CIBIL Score
Credit score, a score that tells your credit worthiness to the lenders. Hence, it is very important to keep your credit score intact. Make sure that there is no delay in your payments, no cheque gets dishonoured, keep away with unsecured credits. Keep a track of your credit score so that you don’t get rejected when you are looking for any credit.