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What is CIBIL Score? Credit Score & Loan Fundamentals!

. 8 min read
What is CIBIL Score? Credit Score & Loan Fundamentals!

How to check CIBIL Score & improve it?

What is CIBIL Score?

  1. A CIBIL Score, also known as credit score is a three-digit number between 300 to 900 that represents the credit history of an individual.
  2. By credit history, it refers to how good that person has been in repaying his loans.
  3. Based on the credit history, the credit score of an individual is deduced.
  4. The closer the score to the 900, the better it reflects upon the credit history.
  5. Lower it is towards the 300, worse it reflects upon the credit history and pulls down the chances of getting loans.

Why CIBIL Score is important?

  • A mere three-digit number decides whether or not you can get a loan if you ever need financial assistance - is your CIBIL score.
  • What is CIBIL score all about?
  • Why is it important for us to know about it? How does it facilitate the smooth approval of loans? Let’s understand.
  • We reach out to our credit cards and loans for several reasons.
  • They prove to be saviours at the time of the financial crisis and also help us to achieve our dreams and aspirations.
  • Most of us who receive calls from the credit card or loan departments of banks and other financial institutions offering-
  1. Life-time free credit cards
  2. Enquiring whether we need a personal loan
  • Seldom do we realise that these free offers for financial aid are not all that easy to get at times.

CIBIL Score Meaning

  1. During the time of taking a home or a business loan, the procedures and interactions that you need to go through, the endless paperwork, and have repeated bank visits to get the loan approved.
  2. The first thing it requires is to have a perfect CIBIL score.
  3. A CIBIL Score check is a mandatory procedure followed by every loan provider.

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Credit Card's CIBIL Score determines your eligibility for Loans

What is considered a good CIBIL Score?

  • The CIBIL Score range that falls within between 300 to 900 is divided into three slabs as mentioned below:
  • The first slab is between 300-600 which is considered to be at credit risk.
  • Borrowers falling within this slab are not likely to get their credit cards or loans approved by banks or other financial institutes.
  • The next slab falls within the range of 601-750.
  • This is the intermediate segment with permissible lending facilities, although, only after evaluating every financial aspect like-
  1. Sources of Income
  2. Income Stability
  3. Loan Security
  • The third and final slab is the mark above 750.
  • The borrowers who fall under this segment are considered safe to be given loans.
  • A high credit score also gives an advantage to the borrower who can use this to bargain for a lower rate of interest.

How is CIBIL Score generated?

  1. Whenever a person applies for a loan or a credit card, the first thing that the lender looks for is the credit score or CIBIL score of that person.
  2. CIBIL stands for Credit Information Bureau India Limited.
  3. It is the first Credit Information Company in India operational since the year 2000.
  4. It maintains the credit activity records of companies and individual borrowers related to credit cards and loans taken from banks or any other financial outfit.

What is a Credit Information Report or CIR?

  1. CIBIL shares your Credit Information Report with the banks and other financial institutes that provide loans so that they can make an informed decision before giving out loans.
  2. Thus, CIBIL plays a significant role in helping loan providers to manage their finance efficiently.
  3. Credit Information Record (CIR) is generated after registering and maintaining the loan repayment records of the borrowers with due diligence every month.
  4. This report is shared with banks and other financial institutes to keep them updated about their current as well as potential borrowers.
  5. CIBIL Score or credit score are generated out of this Credit Information Record or CIR.

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Credit Score Calculation Pie Chart

How CIBIL Report is generated?

  • Five key factors are considered before generating the CIBIL report that includes –
  1. Loan Inquiries
  2. Payment History
  3. Type of Credit opted by the Borrower
  4. Utilisation of Credit Limit
  5. New Credit Facilities
  • Securities or assets used to secure the loan are also taken into consideration.
  • For instance, a home loan or auto loan that's secured by some other house, fixed deposit, or financial investment is eventually expected to mature in the future.

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Factors That Affect Your CIBIL Score

Several factors impact your CIBIL Score. And if you are aware of them, you can maintain a better CIBIL Score just by being a little mindful about these factors.

Repayment Schedule

  1. When it comes to repaying the loan, it is important to discipline.
  2. If you have taken money from someone, you have to repay it.
  3. There are no two ways to it.
  4. Hence, make sure that you have the re-payable amount ready in your bank account every month before the payment date arrives.

Credit Utilisation Ratio

  1. Credit Utilisation Ratio is calculated by dividing the amount of credit availed by the credit limit available to the borrower.
  2. The higher the credit utilisation ratio, the lower it brings down your creditworthiness.

Application for Loans and Credit Cards

  1. Every time you apply for a loan or credit card, you have to go through an inquiry that reflects on your CIBIL report.
  2. More such inquiries are damaging to your CIBIL Score.

Loan Types you have opted for

  1. It is advisable to have a mix of secured as well as an unsecured loan.
  2. Having too much of an unsecured loan reflects badly on your CIBIL score.
  3. Secured loans include our home and auto loans, while our credit card loans are unsecured.

Having No Credit History

  1. It is understandably difficult for a loan provider to evaluate the credibility of a potential borrower with no credit history.

Failing as a Loan Guarantor

  1. This happens when you have been a guarantor for some borrower who has turned out to be a defaulter.
  2. In such circumstances, the guarantor is black-listed by loan providers.

What does CIBIL Score indicate?

  1. There are several parameters that CIBIL takes into account while preparing the CIBIL Report of a person or company.
  2. Having in-depth knowledge about it places you in a better position to claim your rights as a borrower.
  3. It summarises your credit history in a 3-digit numeric format.

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Credit Statement

Also read:
All You Need to Know About Your EMI Payment
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Home Loan: Steps to apply, Best Interest Rates on Home Loans & more
Applying For an Education Loan? Read This Before Signing Over The Dotted Line

FAQs

Q. How to do a CIBIL Score check online?

Ans: CIBIL Score can be accessed online through CIBIL’s official website after providing KYC documents and a fee.

Q. Can I check my CIBIL Score for free?

Ans:
1. As per the regulation passed RBI, CIBIL gives access to the full credit report of a person once a year for free.
2. You can avail of this service from CIBIL official website at any time of the year.

Q. How can I improve my CIBIL Score?

Ans:

  1. It begins with paying your EMIs on time.
  2. Consult your financial advisor from time to time to understand how you can manage your debts better.
  3. Do not use too much credit to keep a low balance.
  4. Maintain a healthy credit mix.
  5. Moderately apply for newer credits.
  6. Keep reviewing your credit history at frequent intervals.
  7. Monitor your CIBIL Score smartly.

Q. What is the full form of CIBIL Score?

Ans: The full form of CIBIL is- Credit Information Bureau (India) Limited.

Q. Why is CIBIL important?

Ans:

  1. CIBIL Score plays a crucial role in the management system of Indian financing.
  2. It helps individuals to secure larger amounts of loans quickly.
  3. CIBIL helps in getting applications approved faster.
  4. It helps in maintaining credit history and keeps track of your financial expenditures.

Q. What is NH in CIBIL Score?

Ans:

  1. NH in CIBIL means No History.
  2. This usually means there is no credit score history available for the borrower.

Q. Is credit score different from CIBIL Score?

Ans:

  1. No. CIBIL Score determines your account's credit history to calculate loan eligibility.
  2. The credit score by CIBIL range lies between 300 to 900.
  3. CIBIL Score is different from CIBIL Report as the former is a numeric expression, while the reports contain all the history and invoices related to credit information.

Q. What is the use of CIBIL report?

Ans: A CIBIL report is an overall credit report that includes the patrons-

  1. CIBIL Score
  2. Credit Review
  3. Personal Details
  4. Employment Data
  5. Contact Information
  6. Loan Account Data
  • It helps in determining the applicants' loan eligibility.

Q. How to Check Credit Score online?

Ans: To check your credit score online, follow these steps-

Step 1- Open the official CIBIL Calculation website i.e.,  https://www.cibil.com/freecibilscore

Step 2- After opening the website, Navigate to the Personal tab

Step 3- On the free CIBIL Score page, click on the "GET YOURS NOW" option

Step 4- After paying particular compulsory charges, you can get a detailed invoice report after clicking ‘Get Your CIBIL Score’.

Step 5- To obtain a free CIBIL Score, you will have to fill up your Personal Information.

Step 6- In that you have to fill in your contact details, email address, and a scanned soft-copy of Government approved identity document.

Step 7- If you have previously registered, you can log in directly as a Member.

Step 8- Your credit score will be mailed to you at the registered address used during Sign in.

Q. How can I check my CIBIL report free?

Ans: You can easily check your 1st CIBIL Score/Report online for free on the official website mentioned above.

  • However, if you have used it up then there is a paid subscription plan for the same which includes-
  1. Monthly- 550 Rupees
  2. 6 Months- 800 Rupees
  3. Yearly- 1200 Rupees
  • Fill up the online form and provide personal information as asked.
  • Accept the mandatory terms and conditions then proceed to the payments page.
  • After verifying your account details, you will automatically receive your report at your email address.
  • Usually, it takes around 24 hours for the process to get completed.

Q. Is it safe to check CIBIL Score online?

Ans:

  1. Yes, it is absolutely safe to check your CIBIL score online.
  2. You can report any issues that can damage your score.
  3. Online tracking helps you stay updated on financial expenditures.
  4. Verifying your credit score online is free only for first-time users.

Q. How long does it take for CIBIL to solve disputes or errors?

Ans: From the day of sending the error notice, it might take around a month for the company to solve your issue.

Q. How to improve CIBIL Score?

Ans: The best methods to improve your CIBIL Score are-

  1. Track Credit Card usage frequently.
  2. Set Reminder alerts on Phone/Electronic Devices.
  3. Change Credit limits if necessary.
  4. Don't discard old credit cards.
  5. Keep clear communication with banks.