11-April-2016 written by : FSI-Team
If you handle your own finances, you are very likely to have heard of CIBIL. If you are about to make an expensive purchase, like a house or a car, then you are going to want to know all about CIBIL. It so happens, CIBIL will be playing a big role in whether you get a loan or not. So, let’s try and demystify what CIBIL is and how it functions in the credit society.
CIBIL – the Credit Information Bureau (India) Limited was formed in 2000 with the objective of collecting and maintaining credit information of individuals and companies. It registered under the Credit Information Companies (Regulation) Act, 2005, thus, being authorised to provide a credit score or rating to a person or entity, whose credit history was being reported to it. It houses more than 220 million records across consumer (individual) and commercial (business entities) categories. CIBIL collects data related to credit facilities extended by banks or lending institutions who are part of its bureau. All top public sector and private sector banks are among its board of members. So, it is very likely that if you are shopping for a loan in one of these banks, they will access your CIBIL rating online to see how you have been honoring your debts so far.
So much for the history and the functioning of CIBIL. How does it act as your loan access meter? All the information on your credit history goes through an algorithm that CIBIL has in place. The result is a 3-digit number or CIBIL Transunion score on the very top of your CIBIL report. This score ranges from 300 to 900. Anything short of 700 puts you in the lesser creditworthy zone. The further you move away from 700, towards 300, the lesser you are likely to be a candidate for a loan. Any score upwards of 700 is looked at with satisfaction and you gain entry into further consideration for a loan. The cut-off score may differ from bank to bank, but more or less 700 – 750 is the standard cut-off.
The only way to know where you stand in the loan approval market is to buy your credit report today. CIBIL has an easy online process, whereby you can request your credit information report and know your CIBIL score based on certain personal information and KYC documents that you supply. If, on getting your report, you identify errors, the CIBIL self-help site shows you how to correct a CIBIL report. The CIBIL rating, however, is not an unchangeable number. If, unfortunately, you realize that the score is way below the accepted score, and you are wondering whether you might get a loan for a low credit score – chances are slim now, but can always improve with some planning and financial control from your side.
Being aware of the components that make up your credit history is the first step to knowing how to increase CIBIL points. So, let’s take a look at the prime elements:
Payment Track Record: If you have always cleared your credit card dues and made timely payment of your EMIs on any loans, whether secured or unsecured, chances are that you will have a good CIBIL score.
Credit Utilization: It is always good to maintain a zero balance on your credit card bills – meaning you should clear your credit card dues without rolling over the balance to the next month’s cycle. If there is outstanding amount on your credit card, or if there are unpaid portions on a loan that you’ve taken, for example, a higher education loan, this can affect your credit negatively. Unpaid balances indicate that there is debt to pay and this gets factored into your CIBIL report.
Mixed Bag of Secured and Unsecured Loans: Credit cards and personal loans account for unsecured loans, while auto and home loans fall in the secured loans category. If you have not taken any secured loans till now, the impact on the score may not be too good, as it is good to have a mix of both in your credit history to have a good score.
Recent Past Financial Behaviour: It is good to have a gap between the last credit card you purchased or the last personal loan that you took and the big loan application that you are about to make. Too much credit extended to you in the recent past could mean that you have a lot of debt to pay off, or you are in need of money and may not be in a position to meet newer repayment terms.
So, make sure your CIR is generated, straightened out of errors or repaired of negative impact, if you want a loan for your next big investment.