CIBIL Credit Score
Lending institutions prefer to give loans and credit cards exclusively to people who they consider creditworthy. The CIBIL score is one of the most important indicators used by Indian credit institutions to assess an individual's creditworthiness. Let’s understand how CIBIL credit score works and how it affects you!...Read More
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What is CIBIL Credit Score?
The CIBIL Score is a three-digit numerical representation of your credit history. The CIBIL Report's credit history is used to calculate the score. A credit payment history across loan kinds and credit institutions over time is referred to as a Credit Information Report (CIR). Your savings, investments, and fixed deposits are not included in your CIR.
Credit cards and loans are used by people today to help them realize their objectives and financial goals. One of the most significant factors and measures in obtaining this much-needed credit is the CIBIL Score.
What is the Full Form of CIBIL?
The full form of CIBIL is Credit Information Bureau (India) Limited, which is an accredited credit agency by the Reserve Bank of India (RBI) that calculates an individual's credit score. The CIBIL definition is a method of determining your creditworthiness by issuing you a CIBIL score, which is a numerical summary used by financial organizations to assess your creditworthiness when applying for a loan, advance, or credit card.
How is CIBIL score calculated?
Almost no loan or credit card application is granted these days without a review of the applicant's CIBIL report and CIBIL credit Score. If you have ever wondered what is a CIBIL score and how it is determined, here’s your answer.
1. Obtaining Necessary Information
The CIBIL credit score is calculated using information from the CIBIL Report's 'Accounts' and 'Enquiries' sections, which includes (but is not limited to) loan accounts or credit cards, payment statuses, outstanding amounts, and days past due.
2. Assessing Past Records
A person's past conduct is used to predict his or her future actions, and the CIBIL Score demonstrates a consumer's credit worthiness. When a person applies for a credit card or a loan, for example, one of the crucial variables that lenders consider is the person's credit profile, as represented by the CIBIL Score.
3. Evaluating Loan Payment Habits
While each credit information firm has its own proprietary algorithm for calculating an individual's credit score, the most essential components of the score are centered on the individual's loan payment habit.
Importance of a good CIBIL Score
In the loan application procedure, the CIBIL score is quite important. When someone applies for a loan at a bank or financial institution, the lender looks at the applicant's CIBIL score and report first. The bank may not even examine the application if the CIBIL score is poor. If the CIBIL score is high, the lender will investigate the application and take other factors into account to evaluate whether the applicant is creditworthy.
The CIBIL score serves as a first impression for lenders. The higher the score, the more likely the loan will be reviewed and authorized.
A CIBIL score goes from 300 to 900, with the highest score being 900. Individuals having a CIBIL score of 750 or higher are generally regarded as responsible borrowers. The various CIBIL score ranges are shown below:
· NA/NH: Your CIBIL score will be NA/NH if you have no credit history, which indicates it is either "not applicable" or "no history." You will have no credit history if you have never used a credit card or taken out a loan. You should think about getting credit because it will help you create a credit history and give you access to credit products.
. 350–549: A CIBIL score in this range is regarded poor. A CIBIL score in this range is deemed poor. It signifies you haven't paid your credit card payments or loan EMIs on time. With a CIBIL score in this range, getting a loan will be tough.
· 550 – 649: In this range, a CIBIL score is deemed fair. However, because this is still not the best CIBIL score range, only a few lenders will consider giving you credit. It implies that you have been having difficulty paying your bills on time. The loan's interest rates may potentially be higher. You must take deliberate steps to raise your CIBIL score even higher in order to qualify for better loan terms.
· 650 – 749: You're on the right track if your CIBIL score is in this range. You should keep up your good credit habits in order to raise your score even higher. Lenders will take your credit application into account and make you an offer. However, you might not have the negotiating leverage to secure the greatest price on a loan's interest rate.
· 750 – 900: You're on the right track if your CIBIL score is in this range. You should keep up your good credit habits in order to raise your score even higher. Lenders will take your credit application into account and make you an offer. However, you might not have the negotiating leverage to secure the greatest price on a loan's interest rate.
Factors determining CIBIL score
The following elements affect the CIBIL score:
1. Repayment history
Banks and NBFCs look at a bad credit history as a predictor of future behaviour. Every time you take out a loan or take out credit, the lender is required by law to report it to CIBIL. The bank keeps track of whether or not you pay your bill on schedule. It is regarded as a favourable indicator if you make an effort to repay in advance. This demonstrates that you can be trusted to pay back what you owe. Missed payments or EMI defaults have a negative impact on your credit score.
2. Credit Balance & Utilization
The credit usage ratio is the percentage of credit you use compared to your overall credit limit. To maintain a healthy credit score, experts recommend keeping your credit utilisation below 30%. A high credit utilization limit suggests a growing debt burden over time, which might harm your credit score. Lenders are wary of debtors that use more than 50% of their available credit. For lenders, a large credit exposure signifies a higher credit risk.
3. Defaulting/DelinquencyMissing or defaulting on credit card bill payments on a regular basis will damage your CIBIL score. Why? Because your inability to pay your expenses will be revealed if you display payment delinquencies on your credit card debt.
4. Credit Mix
One of the most popular criteria used to compute credit scores is credit mix, or the diversity of your credit accounts. It's also one of the least popular among customers.
Multiple credit accounts, such as a home loan, a personal loan, and a credit card, demonstrate to lenders that you can manage multiple types of debt at once. It also aids individuals in better comprehending their financial status and willingness to repay loans.
While having a less broad credit portfolio does not necessarily mean you will have lower credit ratings, the more credit kinds you have, the better (as long as you pay on time). Credit mix makes up 10% of your credit score and can help you achieve a good score.
5. Number of Credit Inquiries
The lender obtains your credit information from the available bureaus when you apply for a loan or a credit card. This is referred to as a "pull" or "hard" inquiry. If you apply for too many things at once, your credit score may suffer.
A high number of recent hard inquiries on your credit report will have a negative impact on your credit score. Multiple hard inquiries indicate that you are in dire need of credit, making you a high-risk borrower. When your credit limit is increased, it may signal a rise in your credit burden, and your credit score will suffer as a result.
6. Duration of Credit History
Banks keep track of your credit history in great detail. From the first time you take out credit, potential lenders can get a full report on your credit history. A long and positive credit history boosts your credit score and makes it easier to obtain credit history.
To build a healthy credit score, you must have credit for a period of time. Your credit score is influenced by your oldest credit account. When you have a long credit history, creditors can be confident that you will manage your debt well, which boosts your credit score. Your credit score will be lowered if you close previous credit accounts. As a result, it is advisable to keep your old credit cards active with minimal transactions in order to preserve a high credit score.
What to do if your Credit Score is low?
A good credit score demonstrates that you are a responsible individual who has consistently met his or her financial responsibilities. If you have a strong credit score, lenders are more willing to lend you money because they see you as a solid investment. As a result, it's critical to have a positive credit history. The following are the most important considerations:
1. Make timely payments: Keep track of your payments. If you make a mistake and miss a payment, strive to make it up as soon as possible. Payments that are past due can have a significant negative influence on your credit score. Furthermore, paying the entire debt can save you money on interest.
2. Keep credit card balances low: Don't use up all of your credit card's allotted credit. Your credit score may suffer as a result of excessive use. As a result, maintaining your balance low can help you improve your score.
3. Keep unused credit cards open: Even if you don't use a credit card very often, you should keep it open because the longer your credit history is, the better.
4. Responsibly manage several credit cards: It's fine to have many credit cards as long as you make all of your payments on time.
Difference between CIBIL report & CIBIL score
To help you understand what is a CIBIL report and what is a CIBIL score, we have mentioned the differences between them in the form of a table.
|Criterion||CIBIL SCORE||CIBIL REPORT|
|Meaning||A CIBIL score is a numerical expression derived from credit data processing.||CIBIL report is a comprehensive document containing all credit data including CIBIL score.|
|Tenure||A CIBIL Score is based on 24 months of your credit behaviour.||A CIBIL Report includes 36 months of your credit history.|
|Category/Types||There is only one CIBIL score which is a three-digit numeric summary of your CIBIL report.||Two types of credit reports exist - Credit Information Report (CIR) for individuals and CCR (Company Credit Report) for businesses|
How to read your CIBIL report?
The various sections of a CIBIL credit report provide precise information about your credit history and score. The following are the elements of a CIBIL report:
1. CIBIL Score
Your three-digit CIBIL score is based on your credit behaviour as stated in your CIBIL report's 'Accounts' and 'Enquiries' sections.
2. Personal Information
Your name, gender, date of birth, and identity numbers such as your PAN, passport number, and voter's number are all found in this area.
3. Contact Information
Your address and phone number are included in this box.
4. Employment Information
This section offers information about the members' monthly or annual earnings, as reported by the banks and financial institutions.
5. Account Information
This section contains information about your credit facilities, such as the name of the lending institution, the type of credit facilities (personal, home, overdraft, etc.), account numbers, the date the account was opened, the date the last payment was made, the loan amount, ownership information, the current balance, and a month-by-month payment history.
6. Enquiry Information
When you apply for a loan or a credit card, your CIBIL credit record will be accessed by the financial institution. The vendor's name, kind of credit, amount of credit applied, and date of application are all given in the report.
How to read your CIBIL report?
1. Credit Score
A three-digit score ranging from 300 to 900 is assigned based on loan repayment and credit card payment history over the previous three years. The CIBIL score is a three-digit figure, and the higher the score, the better your chances of securing a loan at a lower interest rate.
2. Credit Report
When you need to check over your financial history in detail, your credit report provides a thorough account of all your payments and credit lines. It does not, however, always show your credit score. Credit reports are usually several pages long and contain information organized by categories.
3. Credit Rating
Credit ratings are typically assigned to firms for loans obtained from banks, non-bank financial companies (NBFCs), institutions, or institutional investors in the form of loans or other forms of debt.
The ability of a borrower to repay both the principal and interest is determined by their credit rating. The business's historical loan and interest payback history are used to determine a good credit rating.
Credit ratings are usually expressed in symbols, and both individual and institutional investors can use them to evaluate how risky an investment is. The highest credit rating, AAA or A1, signifies a high level of safety in terms of principal and interest repayment. D is the lowest possible grade.
CIBIL Score:Log In & Registration Process
The most well-known credit reporting organization that banks and financial institutions rely on is CIBIL. Once you've registered and logged in to your account, you'll be able to see your credit score and report from CIBIL.
Here’s how you can register on the website:
- Visit https://www.cibil.com/
- Click on ‘Get Your CIBIL Score’.
- Enter your personal details such as name, email address, government ID type, ID number, and mobile number in the first tab of the form, ‘Create your account’.
- Click on ‘Accept & Continue’ to move to the second section of the form, ‘Verify your Identity’.
- Once you complete the section, you can move on to the ‘Payment’ section to make payment for the subscription.
- Upon payment, you are successfully registered with the site. Log in to your account to access the site’s features.
CIBIL Credit Score FAQ's
Usually, a credit score between the range of 650-900 is considered good by lenders.
The credit history included in the CIBIL Report is used to calculate the CIBIL score (also known as CIR i.e. Credit Information Report). A credit payment history across loan kinds and credit institutions over time is referred to as a CIR.
Timely credit payments, using less than half of your available credit lines, managing multiple credit cards responsibly and keeping a balanced mix of credits is a good way to ensure that you have a strong CIBIL score.
Some factors such as multiple loan inquiries, opening new credit accounts frequently, outstanding debt, high credit utilization ratio can negatively impact your CIBIL score.
Lenders typically send credit information to the credit bureau once every 30 days. Smaller lenders may be able to transmit data on a quarterly basis.
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