Before giving various sorts of loans or advances to any individual or organisation, banks and non-banking financial companies (NBFCs) examine their credit score or CIBIL score. This is a preliminary step in determining credit risk. Credit Information Bureau (India) Limited (CIBIL) is a credit information company founded in August 2000. The State Bank of India, Housing Development Finance Corporation Limited (HDFC), Dun & Bradstreet Information Services India Private Limited, and TransUnion International Inc. have all invested in it.
To get an individual's CIBIL score, the borrower must first obtain a copy of his or her credit record from CIBIL. The credit report is a crucial document that contains information about the borrower's credit history. When the borrower receives his or her credit report, he or she will be able to see his or her CIBIL score in it.
The report offers thorough information on an individual's previous loan and credit card repayment history. It also contains information about any defaults made by the individual in terms of timely payment of dues, as well as any penalty penalties incurred as a result of non-payment, if any.
When issuing a loan or advance to a borrower, a lender will use this information to determine the default risk associated with that borrower.
What is CIBIL?
Credit Information Bureau of India Limited is an abbreviation for Credit Information Bureau of India Limited. It is also known as TransUnion CIBIL Limited.It is a credit information firm, sometimes known as a credit bureau. Cibil was created in the year 2000, and it is one of the largest and most comprehensive credit bureaus among the four credit information firms in India.
Cibil Credit Bureau has a database of borrowers (credit consumers) and lenders in its system, and all participating banks send out credit service applications (loans, credit cards, etc.) and loan payback letters every month. CIBIL administers an individual's or entity's financial profile, including the data of all loans and credit cards linked to them, and assigns a credit score based on payment history.
What is CIBIL Score?
CIBIL assigns a three-digit score based on the historical records of people's and institutions' financial activities, as determined by automated computations, and their capacity to repay their debts. Banks and other financial organisations use this score to determine whether or not to make a loan. If a loan customer's credit score does not correspond to the bank's credit policy, his loan application is denied.
We must always take this poison seriously so that our CIBIL score does not go below normal (700-800). Your credit score is considered not just for loans but also for visas from numerous countries. Travel agencies and intermediaries will only transmit your visa application when they have verified your citizenship. Aside from that, the Cibil score is also observed in the verification process before being offered a position in several reputable private organisations.
How is CIBIL Score calculated?
A Cibil score is generated based on your credit behaviour, such as how many banks or NBFCs you have approached in the recent past for a loan. Are you able to make on-time monthly payments on your present loan or credit card? Or, in place of your annual salary, how much money are you owing to your loan and credit card companies? Your capacity to repay your loan is evaluated in light of all of these criteria. The primary criteria that influence the CIBIL score for your comfort are stated below.
- Number of loan/credit applications
- Track record of emi payments and credit card payments
- What type of current loan are there? What is the percentage of unsecured & secured loan?
- Credit utilization – that is, how much of the income is going into payment
- There is no payment default or recovery going on anywhere
- The combined score of all of these is calculated by computer isolation and provides a 3-digit score between 300 and 900. This is the 3-point score you consider cibil/credit score. The higher the score, the better your credit profile will be considered, and the lower the score, the more credit risk will be added to your profile.
How much of a CIBIL Score Is Considered to be Correct?
This is the initial bad credit category; consumers in this category abandon the concept of getting a new unsecured loan or credit card and immediately begin working to repair their credit score.
Above 600 and below 750 is considered to be the second category which is considered normal, those around the score of 600 points can get a secured loan and those with 700 to 750 can also consider taking an unsecured loan or card.
If your credit score is above 750 then you deserve congratulations. it is the category of high-class customers. you can easily get a new loan etc. but still, you should be cautious and use the credit facility thoughtfully. a score above 750 does not even mean that you can get the loan amount you want and the bank will not look at your ability to repay your loan. the loan amount will be decided according to your repayment capacity.
A decent credit score is regarded to be 750 points or more. Nevertheless, customers should constantly ensure that there are no inconsistencies or inaccuracies in their credit activity. If you neglect these items, it will have a negative influence on your credit score, and you may have trouble getting a loan in the future.
- Don't take a loan without needing to, if borrowing from friends and relatives can make a point, then keep this option first.
- Do not apply for loans in too many banks at a time.
- Pay your loan and credit card payments ahead of time.
- Avoid any kind of default unknowingly.
- Don't become a co-applicant or guarantor in a loan with those who don't trust them.
Credit scores are a good facility for banks and other lenders in today's world when information technology reigns supreme. It is also a wonderful way for the loan applicant to discover their credit eligibility at the same time. With this information, we can see how our credit transactions are doing and where we need to improve. With all of this in mind, we should utilise credit services with caution and pay our debts on time. Otherwise, banks would either refuse to lend to us or lend to us at exorbitant interest rates in the future.