What is CIBIL Score?
CIBIL LTD is an credit information company in India with Credit files and maintains credit score of 600 million individuals and 32 million businesses as on date. Earlier it was known as CIBIL Credit bureau. They collect and maintain Credit Information based on monthly and yearly reports from Banks, financial institutions regarding borrowings, loan and credit card payments history of Individuals, HUF, Firms, Company as well as of LLPs.
This bureau is licensed by the Reserve Bank of India (RBI) and is overseen by the Credit Information Companies (Regulation) Act of 2005.
In short every person and identity which is having a PAN Card its credit information is maintained and converted to a three digit score called CIBIL score by this company.
The CIBIL Score so generated is used by lenders during the loan evaluation process. This is numeric three digit number ranging between 300 to 900. The closer you score to 900 more better are the chances with you to get a Credit Card/Loan approved with lowest Interest Rates.
Factors Building CIBIL Score
Payment history is the main factor affecting your CIBIL Score, If your Payment History is good and you are paying your credit card Bills and EMIs on or before its due date then it will definitely increase your CIBIL Score but if you are always defaulting and paying late fees than it will bring down your score. As per a recent CIBIL analysis, a 30-day delinquency can reduce your CIBIL score by 100 points (as reported by Financial Express).
Do you know, Credit taken to Credit Utilisation ratio means the Credit used by you out of your total combined credit limit and this will affect your CIBIL Score. So, always ensure to keep Credit utilisation of your Credit Cards below 30% to score better in CIBIL Report, alternatively contact your card issuance company to offer you higher Credit Limit and get your credit limit increased to maintain this ratio.
The duration of your Loans and credit also affects credit score. If you are having a OD limit or Credit Card from last 3-5 Years and you are always making its payment on time, than definitely if will add to your score, as Lenders always prefer offering credit to people with longer credit history, as they can easily judge you on its basis. So, try to maintain a long association with a loan/Credit Card.
Credit Inquiries/Credit Hungriness
Each and every inquiry you do for loan/credit is recorded in your CIBIL Report, so whenever you got a call or SMS for offering a loan do not just be a “Yes Man” and say Yes, learn to say No to these inquiries.
The more Credit inquiries in your report, shows your Credit hungriness that how you are willing to grab every opportunity to get Credit/Loan, may be with a intention to not paying it. This adversely affects your Credit Score.
CIBIL Score Use in Loan Processing
CIBIL is the first check that a lender performs while evaluating a loan application received. As per Transunion data nearly 90% of loans are granted to persons having CIBIL greater than 750. In case your credit score met the requirement of lenders internal policy of CIBIL, then they proceed further and check your monthly income, existing EMIs, Credit card Bills and will come to your borrowing capacity to grant you the loan.
Many lenders setup the Interest rates of loans based on individuals Credit Score.
Contents of CIBIL Report
CIBIL Report contains the complete details of loan and borrowings you have like
- Home Loans
- Personal Loans
- Auto Loans
- Credit Cards
How to read CIBIL Report
CIBIL do have six sections :
- CIBIL Score – Three Digit Score
- Personal Information – Name, PAN, DOB
- Contact Information : Address, Telephone, Email ID
- Occupation/Income Details : Reported by lenders
- Account Information : Details of Credits availed, Types, A/c numbers, ownership details, date opened, date of last payment, loan amt, Balance and month to month payment details.
- Enquiry Info : here the details of lenders enquiring for you credit report and approx amount is highlighted along with date of enquiry.
In case your CIBIL Score is Zero it doesn’t mean you have negative CIBIL but it means there is no borrowing linked with your PAN to drive your CIBIL Score, so go and get a Credit Card for you which in case of Zero CIBIL you can only get against Fixed Deposit or if you are employed (Salaried Person).
Ways to Improve your CIBIL Score
Lets check some factors which can help you make a better CIBIL Score with a little patience in long Run. Please note there are no short cuts to improve your Credit Score, this can only be done with passage of time and maintaining adequacy in repayments and borrowings
Responsible usage of Credits Offered
Stretch your legs only till the size of your counter pan. Use the Credits availed responsibly and do not spent more than you can’t afford to repay, as you always have to repay your debt whether now or later. Earlier you pay to due date better the Credit Score.
Never pay after Due Date
As the Credit Companies regularly report your Credit and payment pattern to Credit Bureaus, you should avoid paying your EMIs/Card bills after their due dates. It is always advised to use ECS or Auto Debit for your loans and Bills to miss any payment due date and yes their is always a option to pay it earlier too, this way you will never have to worry about making your payment of Bills/ EMIs and it will always keeps your credit Score in a upward trend.
Maintain Low Credit Utilization Ratio (Below 30%)
Do keep your Credit utilization below 30% specially if you are going for a home loan in near future. It shows you as Credit Hungry and banks are more likely to reject your application on this ground. They also check Income to Debt that how much you can afford to pay from your Total Income, While checking they simply reduce your Total income by 30-40% which is the minimum amount needed to manage your household expenses.
Periodically Review of Credit Score
You should review your credit score periodically to check its health but don’t be a “Free Man” who run for every mail and offer to check Free Credit Score. Use official CIBIL.com site to check your CIBIL, one report every year is free for checking.
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