Credit Information Bureau (India) Limited, otherwise known as CIBIL is India’s leading credit information company, with one of the largest collections of consumer information. The members of CIBIL, numbering over 2,400, include all leading banks, financial institutions, Non-Banking Financial Companies (NBFCs), and Housing Finance Companies. CIBIL helps its members manage risk and devise appropriate lending strategies by providing comprehensive, reliable information on consumers and commercial borrowers. In what the company calls “Information for Good”, CIBIL is committed to the national effort of improving financial literacy, inclusion and protection by continuing to invest in content, insights, products, and solutions across all sectors.
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CIBIL Score is a three-digit numeric summary of a person’s credit history, ranging from 300 to 900. The closer your score is to 900, the stronger your credit profile. The score is based on the credit history of the individual, found in the CIBIL Report, also known as Credit Information Report (CIR). A CIR is a history of the individual’s credit payment, across loan types and credit institutions, over a period of time. The CIR does not have details of savings, investments, and fixed deposits. CIBIL maintains a record of individuals’ and companies’ loans and credit cards, which are submitted monthly to CIBIL by banks and financial institutions. This information is then used to create Credit Information Report and assign a CIBIL Score. In short, while the Credit Report is the detailed information on a person’s credit history, Credit Score is a single figure or rank which quantifies the entire report.
Credit Information Report makes the payment history of an individual available to the lender, whenever a new loan or credit card is applied. Financial Institutions and lenders look upon Credit Score and Credit Report to determine creditworthiness. While a high credit score doesn’t guarantee loan approval, it does improve the chances of approval.
To understand the importance of Credit report and score, let us take a hypothetical situation where such a report or score is not available to the lender. Ideally, lenders would treat all borrowers the same and charge the same rate of interest from all borrowers of a particular type of loan. If some of these borrowers default on their payments, lenders would become wary of sanctioning loans and raise interest rates for all borrowers and future loans, so as to compensate for possible default of a small portion of loans.
CIR and CIBIL Score helps lenders differentiate between borrowers, based on their own credit history. Individuals who meet financial obligations diligently build a trustworthy reputation. This “Reputational Collateral” helps individuals avail better terms and offers from the lender. Reviewing personal credit report allows the individual to be aware on what the lender looks for while processing a loan application. It is also helpful in identifying and rectifying any discrepancies, to avoid delays in the future.
You can get your FREE CIBIL Score by following a few simple steps:
The free report is available only once a year. If you want to access reports more than once a year, a fee of Rs 550 must be paid. Other plans with lesser monthly payments are also available.
CIBIL Report contains detailed information on the credit you have availed, which includes personal loan, car loan, home loan, credit cards, and overdraft facilities. Given below are some of the key elements of a CIBIL Report, so you can better understand it.
If the report is a progress card, detailing performance in all subjects, credit score is the overall rank obtained. It is calculated based on your credit behaviour as reflected in the ‘Accounts’ and ‘Enquiries’ sections of the CIR. It ranges between 300 and 900, and a score above 700 is generally considered good.
This section contains name, date of birth, gender, and verification details like PAN, Passport number, Driver’s License number, and Voter’s ID number.
Contact details like telephone number, e-mail, and address are mentioned in this section. Up to 4 addresses are mentioned in this space, which include permanent, residence, and office address.
Contains information like occupation, monthly / annual income as reported by the member banks and financial institutions.
This section contains credit details regarding lenders, type of credit (credit card, home loan, auto loans), credit limit, interest rate, EMI, account number, ownership details, loan amount, monthly record of payments (up to 3 years).
Whenever a financial institution accesses your credit report, it is recorded in the enquiry information section of the report. This usually happens when you apply for a loan or credit card. If the frequency of enquiries is more in a short span of time, it can have a negative impact on your credit score.
It is understood that a good credit score is very important to get a loan from any financial institution. Now, the question that arises is - How can I maintain a good credit score, or how can I improve my credit score? Given below are some simple steps that anyone can follow to ensure a healthy credit score.
Whenever you take a loan, ensure that the payments are made on time. Default in payments is the biggest reason for a reduction in credit score. Financial discipline is a big contributor to a healthy credit score.
Taking a loan can be an easy way out of financial emergencies, but only for the short term. More loans mean more payments, which puts a heavy burden on the monthly budget. Applying for more credit raises the chances of loans being rejected. This combined with the enquiry made by financial institutions for each application, will have a negative impact on your credit score.
Once you have a credit card, don’t be tempted to overuse the available credit limit. Keep your credit utilization to a minimum, preferable below 30% of the limit. Judicious use of cards allows you to repay the used funds on time and portrays you as a disciplined customer.
Review your credit report frequently. It is possible that there might be some mistake in the report, in which case, get it rectified immediately by raising a dispute with CIBIL, on their website. Regularly checking your credit score also allows you to recognize problem areas and correct them yourself, so that your score isn’t drastically affected.
CIBIL score is mainly used for unsecured loan applications. Secured Loans can be availed with minimum emphasis on credit score, however, regular payments on these loans does have a positive impact on your credit report.
Longer tenure for loans equates to lower EMIs. Lower EMIs makes it easier to make payments on time, as the impact on personal finances is lower.
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