Credit Information Bereau (India) Limited (CIBIL) is an Indian credit information company. It collects and maintains records of individuals, firms, companies’ payment pertaining to loans and credit cards.
CIBIL collects the information from all banks and lending institutions in the country. Based on the information, a score card showing score between 300 and 900 is developed. Those borrowers who have higher scores get better chance of getting loans when they apply for new loans.
When you apply for a loan, the banker (or lender) will check your credit score. If the score is poor (say 300), the lender may reject loan application form. So, CIBIL Score is one of the important criteria for one to get loans from the banks/institutions.
How to score more points in CIBIL report?
It’s simple –
- Pay your dues on time – Pay Equated Monthly Installments (EMI) on time. The delay in payment of EMI is considered negatively for score card. Your payment history will speak about your commitment to repay the loan.
- Credit card usage – Too much credit card usage is also considered negatively. (maybe it shows that you are hard-pressed for money to meet your monthly commitments)
- Type of Loans – It is not considered as good credit history if you have many unsecured or personal loans. Generally, unsecured and personal loans attract higher rate of interest. So, it is perceived that only those people who are in urgent need of funds avail these loans. (it shows that you are in distress)
- Cheque bouncing – If you are missing the payments (cheque bounces) the score will be impacted very badly. Nonpayment shows that you are in trouble financially
- Track Record of Loans – Taking loan is also important. So, it is not just about repaying the loans on time, but also about availing some loans. Many individuals proudly say that they have not availed any loan so far. In such cases, the CIBIL Score won’t be shown at all. Many lenders consider it as negative for giving loans (probably the lenders will be comfortable with those who have availed loan and repaid it on time than those who have not taken any loan)
The Score – A credit score or CIBIL TransUnion Score is a 3 digit numeric summary of your credit history. This score is derived based on individuals credit payment history across loan types over a period of time. This score doesn’t consider your savings, fixed deposits or investments. As I mentioned above, the score is between 300 and 900. A score of 750 is generally considered as good score.
A word of caution to Guarantors – It is a catch 22 situation, if one of your known people ask you to be the guarantor to his loan. You will find it very difficult to say NO. Isn’t it? Suppose, you sign as a guarantor to the loan of your friend and if he defaults in repayment, your credit score will get adversely affected. So, try not to be a guarantor to a loan or keep track of his loan repayment.
Will write more about CIBIL in the coming articles
Thought for the day
Your reputation is like a credit score. Everything you do can affect it.