Established as the Credit Information Bureau (INDIA) Limited or CIBIL in August 2000, CIBIL is India’s first Credit Information Company (CIC) and is the central recorder of the credit information of all the borrowers. CIBIL is backed by TransUnion International and Dun and Bradstreet, which are major global credit bureaus and agencies. CIBIL collects and maintains all the record of each particular individual regarding the loans and credit cards and provides the same information to all other financial institutions, so that the banks can be aware of your credit history before approving your loan.
This information is provided to CIBIL by the member banks and finance houses. Every time you borrow a loan or avail a credit card, your credit and repayment information is collected and submitted by the member bank to CIBIL on a monthly basis. This information is collected and recorded to create a Credit Information Report (CIR), which is in turn shared with all the other banks and financial institutions.
When you apply for a loan, your CIR is first verified by the bank, to prevent the bank from providing a bad loan or lending money to borrowers who may not be credit worthy. Thus, the CIR is your credit score sheet, which the bank verifies before approving your application. CIBIL has played an important role in the Indian financial system, providing efficient information and preventing a bad situation.
CIBIL credit score or credit rating is, in short, a 3-digit figure ranging from 300 to 900 points which denotes a person's credit worthiness.
This figure is derived from the CIBIL report of an individual through advanced statistical algorithms that take into account their credit history including borrowings, repayment patterns, defaults in repayment and other data relevant to a person's creditworthiness.
CIBIL scores are calculated on the basis of at least 6 months of historical financial data of an individual. The data is fed into an algorithm with 258 different variables; each with a different weightage.
A CIBIL credit score represents an individual's financial stability, and helps lenders assess his or her financial credibility. CIBIL is India's first credit information bureau. CIBIL is a repository of information of your repayment track record on your loans and credit cards.
The below table depicts what makes your CIBIL score:
| Score Parameter | Weight age | Score Parameter Meaning |
|---|---|---|
| Payment history | 35% | The number of time you miss your payments has the highest influence on your credit score and can negatively impact your credit score. |
| Credit Utilization (Total of all credit card balances/ Total of all credit card limits) | 30% | CIBIL records how much of debt you utilize as compared to the upper limit that is set by the bank or credit card issuer. Higher utilization has a negative impact on the score. |
| Credit Age (Length of credit history) | 15% | The longer your credit history, the better it is for you. This means you are responsible with credit over the long term. |
| Credit Mix (The types of credit you use) | 10 % | A healthy mix of credit unsecured loans such as personal loan and credit card and secured loans such as home loan and car loan have a positive impact on your CIBIL report |
| Inquiries (The inquiries recorded on your credit report) | 10% | The banks pull out your report every time you apply for any type of loan. Such inquiries form a footprint on your credit report. Too many inquiries demonstrate have a negative impact on your score and demonstrates credit hungry behaviour. |
Analysing your CIBIL score
| 750 - 900 | Excellent Score reflecting impeccable and consistent past repayment track record You are likely to get loans at most competitive interest rates from best banks Subject to eligibility and credit report, you should be able to easily obtain secured loans like home loan and car loan and unsecured loans like personal loan and credit cards |
| 700 - 750 | Fairly good score reflecting fair past repayment track record You are likely to get loans at competitive interest rates from banks Subject to eligibility and credit report, you should be able to easily obtain secured loans like home loan and car loan. Before sanctioning unsecured loans like personal loan and credit cards, banks are likely to conduct further credit analysis |
| 550 - 700 | Lower score reflecting some delays or irregularity of loan repayment in the past Many lenders may avoid sanctioning you loans except with significant credit check Banks and finance companies may still consider your loan application subject to high collateral and low LTV Interest rates offered may be relatively higher |
| 300 - 550 | Reflects a history of multiple delinquencies and/ or over leverage Your credit report is likely to list more than one write-offs/ settlements/ over due payments Extremely difficult to obtain loans from organized lenders |
| -1 | This implies that the borrower has no previous history of borrowings with any bank or other financial institutions in the country i.e. no credit history. |
Your Credit Information Report is a record of your past loans and consists of three parts as below:
Your Personal Details
Name PAN , Passport, Driving Licence Past and present address Past and present contact details Occupation Income
Your Past Loan Repayment Track Record
Loan wise record of type of loan, sanctioned loan amount, rate of interest, current loan amount outstanding, payment record, any delayed payments, defaults, settlements, write-offs, sanction date, last payment date, closure date Includes home loans, vehicle loans, LAP, personal loans, credit cards, business loans, etc across all lenders Includes loans availed by others where you may be a co-borrower and a guarantor
Your Past Loan Applications
Every time you apply for a loan, the bank accesses this. This section lists all your loan applications reported by all banks with date, loan type and loan amount applied Too many loan requests mean a customer is trying to get a loan from many banks but is not able to get it The number of inquiries- Every time a bank accesses your report before giving you a loan or a credit card it accesses your credit report. Each of these inquiries are called hard inquiries and are recorded in your CIBIL report. Too many hard inquiries indicate that you are credit hungry and will therefore have a negative impact on your credit score.
To put in a nutshell, a credit score is an indication of your creditworthiness while a credit report is a detailed report of your financial health that banks are free to access if you apply for a loan. Now that you are clear about what goes into constituting your credit score and a credit report you must also know that it is of utmost importance to keep up an impeccable credit record. So if you intend to take a home loan or any other loan for that matter, make sure you maintain a good credit history.
A good credit score is one of the most important eligibility criteria based on which a bank gives you a loan. When you take any kind of loan from a bank or apply for a fresh credit card, your personal details, employment details and repayment track record are passed on by your bank to credit bureaus.
There are three major credit bureaus in the country- CIBIL, Equifax and Experian.
CIBIL, full form Credit Information Bureau (India) Limited is the first credit scoring of agency of India, which was started in the year 2000. Experian India, registered as Experian Credit Information Company of India Private Ltd Equifax India is registered as Equifax Credit Information Services Private Limited (ECIS)
These organizations assign you a credit score. The parameters that are used to arrive at your credit score are:
Age of accounts Status of accounts Outstanding balance Payment history
Your credit score, which the Banks check , is a precise indicator of your credit history which reflects factors like:
Record of late payments and defaults. Loans and credit cards that you currently hold. Diligence towards paying loans and credit card bills. Number of loan and credit card applications submitted by you.
The scoring pattern for each credit bureau is different. CIBIL which is the most popular and the most referred to by banks has a score band of 300-900. Equifax has a score range of 1-999 and Experian 1-1000. The credit score can therefore be called a statistical comparison that your prospective bank will look at during your credit appraisal process before it decides whether you are loan worthy. Since most banks go to CIBIL to check out your credit score, its important for you to bear in mind that you must have a CIBIL score of 750 and above to qualify for a loan.
There are a number of factors impacting the CIBIL Score negatively
1. Late and untimely payments- Delaying loan and credit card payments shows as an overdue (Days Past due DPD) in credit report and every late payment reduces around 50-70 points of your credit score. Any bank would hate to see that you are a habitual late payer on your credit card bills and EMIs. This gives them the impression that you are a high risk customer.
2. Utilization on your credit card- Plastic money has indeed made life incredibly simple, but make sure that you do not go overboard with your credit card spends. Ideally you should keep your card utilization under 30% of your credit limit.
3. The minimum amount trap- Always spend on your credit card in a manner so that you can make your entire payments in full and do not get into the cycle of revolving credit. Not only do you end up paying extra on service charges and interest component, it does not flatter your credit score as well.
4. Non closure of previous loans- Make sure you keep a record of the closures of all your past loan accounts. If you have paid all your dues, but haven't received a no-due certificate from your lender, it may show up as a live account on your credit report.
5. Payment default- Any kind of payment defaults is taken very seriously and can impact your credit score for good. Be it any loan or credit card, make sure you keep enough resources aside to make your payments in full on time. A default on a loan can bring down your credit score by 150-200 points while credit card defaults may trim off 100 points on your credit score.
6. An unhealthy mix of credit- While this is not the most important parameter that drives your credit score, having a good balance of secured and unsecured loans certainly has a positive impact on your credit score as opposed to having a lopsided credit profile with only one type of loan. Having a good mix of loans and servicing them properly gives the impression that you are financially responsible and credit worthy.
7. Hard inquiries- If you have applied for too many loans or cards in a short period of time, it is highly likely that your score has gone down. Why? With each application you make, banks pull out your credit report. These report pulls done by the bank will be recorded as hard inquiries on your CIBIL report and will have a negative impact on your credit score. Every inquiry on your report costs you 5-10 points of your score.
