Let us read in this article what is CIBIL score? How is it calculated? How much CIBIL score is considered good etc.
What is CIBIL?
The full form of CIBIL is Credit Information Bureau of India Limited, also known as TransUnion CIBIL Limited. It is a credit information company or credit bureau. CIBIL was established in the year 2000, out of the 4 credit information companies operating in India, CIBIL is one of the main and oldest credit bureaus.
CIBIL Credit Bureau maintains the database of Borrower (credit consumer) and Lender (lender) in its system in which all the participating banks provide information of credit service application (loan, credit card etc.) and loan repayment every month. CIBIL manages the financial profile of individuals and institutions and keeps the details of all loans, credit cards related to them and determines a credit score based on the payment record.
What is CIBIL Score?
CIBIL determines a 3 digit score by computerized calculation according to the historical record of financial transactions of individuals and institutions and their ability to repay the loan. Banks and other financial institutions check this score before giving any type of loan. If the CIBIL score of a loan customer does not fit the credit policy of the bank, then his loan application is rejected.
We should always be careful that our CIBIL score is not less than normal (700-800). Your CIBIL score is checked not only for loans but also for visas to many countries. Travel agents and middlemen process your visa application only after checking your CIBIL score. Apart from this, CIBIL score is also checked in the verification done before giving a job in some good private institutions.
How is CIBIL score calculated?
CIBIL score is calculated according to your credit behavior, for example, how many banks or NBFCs have you approached for a loan in the recent past? Are you able to make the monthly payment of your current loan or credit card on time? Or how much money are you paying to the loan and credit card company in lieu of your annual income? Keeping all these factors in mind, your credit worthiness is checked. For your convenience, we have listed the main factors affecting the CIBIL score below.
• Number of loan/credit applications
• Track record of EMI payments and credit card payments
• What are the types of current loans? • • What percentage of loans are unsecured and secured?
• Credit utilization – i.e. how much of the income is going towards paying the installment
• Is there any payment default or recovery going on?
The computer algorithm calculates the combined score of all these and gives a 3 digit score between 300 to 900. This 3 digit score is considered as your CIBIL score. The higher the score, the better your credit profile will be considered, and the lower the score, the more credit risk will be associated with your profile.
How much CIBIL score is considered correct?
As we already know, the CIBIL score of every person and company is different and fluctuates between 300 to 900. Let us know how much CIBIL score is considered in which category?
✓ 300 – 600
This is the first category which is not considered good, customers falling in this category should abandon the idea of taking a new unsecured loan or card and immediately start trying to improve their credit score.
✓ 601 – 749
Above 600 and below 750 is considered the second category which is considered normal, it is possible for those with a score of around 600 to get a secured loan and those with 700 to 750 can also think of taking an unsecured loan or card.
✓ 750 +
If your credit score is above 750 then you deserve congratulations. This is the category of high class customers. You get new loan etc. easily. But still you should be cautious and use credit facility wisely. A score of more than 750 does not mean that you can get the desired loan amount and the bank will not look at your loan repayment capacity. The loan amount will be decided according to your repayment capacity.
How to improve your CIBIL score? – How to maintain good CIBIL score?
A good CIBIL score is considered to be 750 points or more, consumers should always keep in mind that there are no irregularities or errors in your credit behavior. If you ignore these things, it has a negative impact on your CIBIL score and there is a possibility that you may face problems while taking a loan in the future.
We are writing some tips below which will help you to maintain a good credit score in a broad sense:
• Do not take loans unnecessarily, if borrowing from friends and relatives is possible then keep this option first
• Do not apply for loans in many banks at the same time
• Pay your loan and credit card payments on time
• Avoid any kind of default knowingly or unknowingly
• Do not become a co-applicant or guarantor for a loan with someone you do not trust.
Questions and answers related to CIBIL and credit score
Is CIBIL score necessary before taking a loan and credit card?
Yes, every bank checks the eligibility of the applicant before giving a loan. CIBIL score is an important point of it, banks easily give loans to those with good credit score.
Does CIBIL score never get better once it gets bad?
No, it is not so, if you gradually manage to repay all your loans regularly then the CIBIL score also gets better.
How can I check my CIBIL report?
You can check your CIBIL report for free from the official website of Transunion CIBIL. There are many websites on the Internet that claim to provide CIBIL report for free, as a precaution you should check CIBIL score from the official website only.
Are there other credit bureaus besides CIBIL?
Yes, in India, apart from CIBIL, there are 3 other credit information companies that provide credit scores. Their names are Equifax, CRIF Highmark and Experian.
Does CIBIL also tell the credit score of a company or firm?
Yes, CIBIL also prepares credit reports of companies.
Conclusion:-
In today's time, information technology is dominant, due to this credit score is a good facility for banks and other lenders. It is also a good means for loan applicants to know their credit eligibility. With its help, we know how our credit behavior is and where we need to improve.
Keeping all these things in mind, we should use credit services carefully and pay the loan on time. Otherwise in future banks will either refuse to give us loans or will provide loans at high interest rates.
If you have any questions related to credit score or CIBIL report, you can ask by writing in the comment section below. If you liked the article, then share it with your friends.
