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The banks rely on the credit score to offer you a new line of credit may it be a credit card or a loan. Earlier they just had to believe the word of the prospective borrower and the lenders would estimate if the applicant is good for the loan or not. Most often the liable people would get rejections and the liars and cheaters would find their way to cheat the credit managers and cheat the lenders.
CIBIL Credit Information Bureau of India Limited became the first of such an organisation to start collecting credit information that was contributed by their members and maintained the borrower’s records. The CIBIL TransUnion score is measured out of 900 which provides the lender a clear indication of the applicant’s liability based on his credit history.
The CIBIL score is calculated based on the following factors:
The repayment history accounts to 35 percent of the score. Therefore you need to clear all your bills and loans well within the due date to maintain a good repayment history. If you default even once, it will negatively impact your score.
The amount you owe to the lender accounts to 30 percent of the CIBIL score. There are two considerations with regard to this, the first being the total credit limit that is being sanctioned to you and the second being how much of the credit have you utilised. The credit utilisation ratio is calculated as the balance that is outstanding on your credit cards and loans. If you have made most use of the credit, then your profile will be considered as ‘risky’.
This is an important factor as well and it accounts to 15 percent of the score. If you have been servicing the loan for a longer period and handled it responsibly and made timely payments, then it will positively affect your CIBIL score.
This accounts to 10 percent of the credit score. Each time you apply for a credit, the lender will run a credit check on you and if there are too many inquiries going through, it will negatively impact your credit score.
This accounts to another 10 percent of the CIBIL score. If you are avoiding credit like a plague and just opted for a single type of credit, it is not helping you have a good credit score. You need to have a mix of secured and unsecured loans. This means you must have a mix of the different types of credit that is mortgage, personal loan, car loan, credit card etc. Having the right mix will increase your credit score rather than having just one type of credit.
Keep in mind that your credit score affects your application approval and rejection and it also affects the terms and conditions that the lenders offer. If you have a higher credit score, you will be at a position to bargain for relaxed terms and conditions and also for a lower rate of interest. Check your credit report often and make sure that all the details entered are accurate and right to your fullest knowledge. If there is any wrong information recorded, then fix it at the earliest and then apply for the loan only when the score is adjusted. Make sure the EMIs are paid on time and don’t build up balances on your credit cards, clear them off as the month ends.
CIBIL Related Articles
Know here: How to improve your CIBIL Credit Score
My credit score is different? What do I do? A credit score expresses an individual’s financial stability and debt reimbursement capabilities. It is determined by credit rating agencies, which are in four in number in India and have been created by the Central Bank of India. These credit rating agencies will rate individuals based on different credit scoring modules. An individual shall be rated differently since credit scoring modules used by credit bureaus will slightly vary in terms of priorities. Due to which, an individual is rated differently, but ratings offered by all credit rating agencies are equal.
The people looking to apply for personal financial products should have a fair idea on credit scores and should monitor them periodically. The best thing they can do is to obtain a free copy of credit report once a year. Thereby, you can understand where you stand in terms of your credibility. Be sure to have a good credit score always if you are willing to apply for a long-term personal financial product. A good credit score can be built and managed. You can obtain a free credit score online. So, make sure to check credit scores.
5 February 2018
In order to aid employee screening and e-Commerce companies make informed and faster decisions based on the individual’s credit behaviour, TransUnion CIBIL has partnered with these firms with the intention of utilising data in order to make better and quicker screening decisions. On e-Commerce portals, the credit screening application happens, as of now, after the consumer provides his/her application. But with the new initiative, consumers will have access to CIBIL Score and Report and not just offers that they are eligible for.
This in turn will decrease the rate of rejection on all applications and thus ensures that the process is faster, much more efficient and easier as well. In order to encourage transparency and also create awareness, the CIBIL Score as well as report will be shared with customers without their having to pay additional charges.
18 April 2017
