18-Feb-2017 written by : FSI-Team
By now we all understand the importance of having a good CIBIL score. A CIBIL score encapsulates a borrower's credit past and all credit related activities like which loans or credit cards had the borrower taken in the past, were the payments made on time, how many accounts are currently in use, how many new accounts have been applied for etc.
However, it is a gross mistake to assume that your CIBIL score records your savings account and current account information. Does that mean your eligibility for loan does not depend on your bank balance? No. That is not what it means. Let us elaborate.
Lenders are interested in knowing your net worth that is your assets minus your liabilities. If your net worth is negative or zero then it means either your assets are less than your liabilities or they are just enough to cover your existing borrowings.
Either ways, there is no point for banks to lend further to this applicant. He is either already over leveraged or has no room to bear additional repayments.
Banks will gauge your liquid assets through your bank statements, expected future income through your salary slip while they would examine your open trade lines through your CIBIL report. Subsequently they calculate your net worth and draw conclusions based on it.
Lenders look for more items in your bank statement. Such as "Cheques bounced". If you have one too many instances of cheques that bounced due to "insufficient funds" then it will be taken negatively by the credit institution. It reflects poorly on your ability to repay the borrowed funds.
It would also indicate that either you are careless and not aware of your duties as a borrower or you are struggling to arrange for funds every now and then. No lending institution would like to partner with such an individual.
CIBIL strictly restricts itself to recording all information related to past credit activities like loans taken, loans serviced, if there were delays in payments, number of open accounts, whether an account was settled etc. It has nothing to do with how well your funds are performing or the rate of interest you are earning on your deposits.
You may have a hefty bank balance but if you have not paid your debtors then you are bound to score poorly. A CIBIL report marks your behaviour as a borrower and not as an investor. Thus, your savings account, current account, fixed deposits and other investments has no weightage in CIBIL score calculation.
So the number of deposit accounts you have, whether they are zero balance or not, the amount of money in each account, etc. are not recorded in CIBIL reports.
Often people have this myth that since they have a fairly large amount of money in their name in their bank account then they would easily qualify for a loan. But bank balance is not the sole determinant of one's eligibility.
Sukumar Misra had the same question on why he wouldn't be eligible for a personal loan of 10 lakhs when he had much more than that lying in his bank account. Sukumar’s CIBIL score was absurdly 643.
Credit institutions primarily evaluate every person on two parameters – their ability to repay and their intent to repay. While their ability to repay can be measured through their bank statements, salary slips, IT returns etc., their intent to repay is displayed in their credit past.
It took a great deal of effort to explain to Sukumar that two previous "settled" remarks and frequent defaults on his credit report were obstructing his chances of getting a fresh line of credit. Up till now Sukumar took pride in him as someone who was able to bend his lenders to accept a lower payment and "settle" loan accounts.
It was the first time he realised how wrong he was. For him having a large bank balance would supersede his CIBIL score. Neither does money in your account overrule your CIBIL score nor does it affect it in any way.
Therefore, don't let the money in your savings account lie idle. Use it to make timely payments and build a healthy credit score.