The Credit Information Bureau of India Limited (CIBIL) is a central repository of your personal credit score. What is a personal credit score? We all build a personal credit track record over time. For a credit record you must first take credit. People with no credit normally do not have a credit track record and hence CIBIL can be irrelevant in their case. When you take loans and pay the instalments on time it is positive for your credit score. Similarly, if you default on loans or if your cheques bounce then it is negative for your credit track record. The sum total of all these activities pertaining to your credit track record are captured by CIBIL and are made available to banks and other lenders for verification. Let us focus on what is CIBIL score in India, the CIBIL score meaning and the CIBIL score range.
What is the CIBIL score all about?
To understand CIBIL score, let us first understand the concept of a Credit information report (CIR). When you approach a bank or an NBFC for a loan, they will first generate your CIR which summarizes your payment history of loans and credit cards borrowed from all banks and financial institutions. Remember, since all your loans and credit cards are mapped to your PAN card, there is nothing that virtually can escape your CIR. Based on the CIR, CIBIL will use an algorithm to generate a credit score which is also known as the CIBIL score. The CIBIL Score is a 3-digit number ranging from 300-900. The closer your score is to 900, the stronger your credit profile. Normally, a score of 750 and above is considered to be a basic necessity to be eligible for fresh loans. Ensure that you have some credit against your name as otherwise there will be no credit track record against your name to judge.
Why is the CIBIL score important?
CIBIL Score or the credit score has a critical role to play in the loan and credit card approval process. Banks and NBFCs who are giving you loans use this is the first screening criterion when reviewing your loan application. Normally, if your credit score is marginally below 750 you may still be considered but if it is too low then your application is outright rejected. Let us assume the case of two private sector executives with Credit Scores of 800 and 610 respectively. What happens when they apply for a home loan? Prima facie, it is more likely that the bank will screen the individual with an 800 Credit Score for further evaluation, while the application with the Credit Score of 610 may not be processed. It is not to say that the person with a 610 score will be rejected outright but they will ask for more surety or a higher rate of interest in that case.
The relevance of CIBIL score for your future credit needs
Quite often borrowers get confused between a CIR and a CIBIL score. While they are related, there is a critical difference. CIR is like a report card and the CIBIL Credit Score is like the overall rank you get. CIBIL basically synthesizes all the information in a CIR and translates that into a number to gauge your credit and financial health. CIBIL score is only one of the factors that go into your loan approval. The bank also looks into factors like your income level, existing loan obligations and family responsibilities etc. These things are largely based on the individual credit policies of each bank. However, the moral of the story is that if you have a higher credit score, you stand a better chance of getting loans and cards approved.
What you need to know about your CIBIL score?
You can get your CIBIL score with a detailed report from your bank by paying a small fee. You can also download your report from CIBIL. There are also some aggregator websites that allow you to download the report free of cost. The bottom line is that individuals who have managed their obligations appropriately build a positive reputation and that is reflected in their credit score. A good CIBIL score, however, is not an assurance that your loan will be passed. Here are few key things for you to remember:
It is suggested to purchase and review your Credit Score and CIR prior to commencing your loan hunt. It gives you a good perspective.
It will help you to identify and rectify discrepancies in your CIR and avoid loan rejections
If your credit score is showing NA, it means you don’t have a credit history or that you do not have any credit activity for the last 2 years.
If your CIBIL score is low, you can become more regular in your repayments and thus improve your score. The CIBIL score is a dynamic and not static concept.