If one were to look for an individual’s financial report card, as it were, one of the seminal factors which need to be reviewed is his credit history. Credit history, includes but is not limited to, details of loans taken by an individual, in addition to his credit cards, which reveal his track record of payments. It is here that CIBIL score plays a pivotal role in that it is one of the important parameters to gauge your ability to repay a loan or ascertain your creditworthiness.
You would do well to have a more detailed understanding of several aspects of the score. Some of the common questions related to CIBIL are the following:
What’s CIBIL all about?
Founded in 2000, the Credit Information Bureau of India Limited (CIBIL) collects a record of an individual’s loans and credit cards. CIBIL, which is ISO 27001:2005 certified, is divided into two divisions, namely, consumer bureau and commercial bureau. The consumer bureau (launched in 2004) has over 260 million records while the commercial bureau (launched in 2006) has over 12 million records. TransUnion International and Dun and Bradstreet are CIBIL’s technical partners.
What’s a CIBIL score?
Banks, as part of their due diligence process, gauge the creditworthiness of individuals based on credit scores. The information listed on your credit report includes several variables that CIBIL uses to set your credit score. CIBIL score, therefore, reflects the extent of the probability of a default. An individual’s credit history is submitted to CIBIL by banks and financial institutions on a monthly basis.
What do high and low credit score determine?
A high CIBIL credit score essentially means less probability of a default. A low CIBIL credit score reflects high probability of a default.
How can you get your CIBIL score?
Log on to the CIBIL website and click on the ‘know your score’ tab to get a personalized credit score. Fill an online form which requires you to include details such as your name, date of birth, income, identity proof, address and phone number, in addition to the loans taken by you. Following payment of a certain sum, you will have to submit authentication details which include questions based on your credit history. After authentication, your credit score will be emailed to you.
Will checking your score have negative repercussions?
Experts suggest checking one’s CIBIL score once a year. The practice is often considered a ‘soft inquiry’ as opposed to credit card issuers asking CIBIL for your score, known as a ‘hard inquiry’ (mentioned in the ‘enquiry section’ of your report). Also, if you apply for a loan with various banks at the same time, it will result in hard inquiries which may have a negative impact your score.
Will opting for a credit card decrease my score?
If you have a zero outstanding balance on your old credit card, there is no reason to unduly worry about it and close it. If you have a credit card with a clear payment history, it will not only reflect your responsible credit behaviour but also keep your utilization rate low, which impacts your score positively.
Does zilch credit mean a good score?
There are many who avoid loans like the plague, hoping that their CIBIL score will then be perfect. Nothing can be farther from the truth. If you do not borrow, you do not have a credit history and, therefore, no credit bureau can assign a score. Consequently, you might find it difficult to get a loan. Timely repayments are of seminal importance to ensure that your score remains above 750.
Is there only one credit bureau in the country?
In addition to CIBIL, there are three other credit bureaus in India, namely, Experian Credit Information Co. of India Pvt. Ltd, Equifax Credit Information Services Pvt. Ltd and CRIF High Mark Credit Information Services Pvt. Ltd. Since all the three have different scoring patterns, your score may vary. Nevertheless, if you have a good CIBIL score, you will get favourable scores by others too.
Do late payments and high utilization of credit limits have a negative effect on your score?
If you have missed payments on any of your loans over the years, your credit score would be negatively affected. A higher utilization pattern equals to more repayments and, therefore, negatively affect your score.
How do more number of personal (unsecured) loans affect your score?
More number of personal (unsecured) loans would also affect the score in a negative way since such loans have a high rate of interest compared to car or home loans and, therefore, more likely to result in defaults.
What if you are ‘credit hungry?’
If you are in urgent need of moolah and applied for credit from several lenders, it will have a negative impact on your score since lenders will then be wary to issue a fresh loan while evaluating your creditworthiness.
How can i improve my credit score?
- Timely payment of EMIs results in a clean credit history.
- Make full payments on your credit card instead of the minimum payment. If all else fails, try to make the minimum payment.
- A credit card debt is known as revolving credit which helps build a good credit score faster (provided payments are made on a regular basis) compared to a loan.
- If your utilization of credit limit has been low, it will have a positive effect on your score.
- Prompt repayments help boost your score.
- Reviewing your credit history regularly helps you gauge your financial health.
How do you correct errors in your CIBIL report?
RBI has made it mandatory for banks to comply with an individual's desire to access his or her credit report. If a bank declines a credit card or loan application, you can ask for the control number of your credit report. You can then contact CIBIL at firstname.lastname@example.org and communicate details of errors in the report.
What’s a control number?
The control number is a nine digit unique number that helps CIBIL track your credit report. The control number is generated if and when banks access your credit report.
There is a view that the CIBIL score mechanism suffers from several drawbacks. For instance, an individual with a CIBIL score of 750 pays the same rate of interest as another with a CIBIL score of 850 since loan eligibility is largely based on the income of an individual. Secondly, late updation or wrong entries in the database by CIBIL may result in some borrowers losing out on acquiring loans. Thirdly, unsolicited queries for scores by certain banks or financial institutions may have a negative impact on an individual’s credit score.