Recipe for a good CIBIL score

Everybody having money for all their needs happens only in an ideal world. So we all rely on financial credit at different occasions. For Purchasing or constructing a home, financing education, meeting business emergency, financing cultivation & harvesting of agricultural crops or at times it can even be to meet other finance emergency needs. Before sanctioning a loan the institutions will look at our profile and judge our repayment capability analysing various documents and factors like employment details, mortgage value, average bank balance etc and in addition CIBIL credit score & CIR report too.  

CIBIL (Credit Information Bureau (India) Limited )

          TransUnion CIBIL Limited is India's first Credit Information Company. They collect and maintain monthly reports (Credit Information Report- CIR) from banks and financial institutions, detailing individuals' and non individuals'(commercial entities) loan and credit card payment history. These records are submitted by banks and other lenders on a monthly basis. Using this information a Credit Information Report (CIR) and Credit Score is developed, enabling lenders to evaluate and approve loan applications. CIBIL has over 2,400 members–including all leading banks, financial institutions, non-banking financial companies and housing finance companies–and maintain credit records of over 550 million individuals and businesses.

What is CIR and a credit score?

Credit information report(CIR):

CIR is the factual record of your credit payment history compiled from information received from CIBIL members. It contains your basic information; details about all the credit facilities availed, past payment history, amount overdue, current status, etc. It also contains details about enquiries made by a financial institution for your credit report.

Credit score:

· Three digit numeric summary of your credit history.

· Value ranges between 300-900.

· Derived by using details found in on your credit information report(CIR).

· It indicates the probability of default of a borrower based on their credit history.

· Higher the score, more favourably your loan application will be viewed by the financial institution.

· A score of 750 or above is considered as good by banks and financial institutions.

· NA or NH means that either you have no credit history or are new to credit system. It also implies that you haven't had any credit activity in the last few years or you have no credit exposure. This is not a bad indication.  

What impact does it make?

Based on the information received from CIBIL, banks will be able to know whether you are capable of and will actually repay the loan. An unfavourable credit score may result in rejection of your loan application or may actually sanction the loan with lower amount or with higher rate of interest to safeguard the risks. So the credit score on higher knots will give you higher probability of getting a loan sanctioned.For example, imagine you have an education loan from state bank of India and at the same time using an ICICI credit card. Both these institutions will submit details on your account activity to CIBIL on a monthly basis. Now assume you apply for a housing loan with HDFC. As a part of the home loan application processing, HDFC will approach CIBIL to obtain your CIBIL score and CIR. Only timely servicing of education loan and credit card dues will provide you a favourable credit score and prove you are credit worthy. HDFC bank will take this into account before taking a decision on sanctioning the home loan.

What affects the credit score?

There are four major factors that affect your score to fall below the expected level.

1.       Payment history:

Recent/consistent late payments and EMI defaults establishes your trouble to pay existing credit obligations.

2.      High utilization of credit limit:

Increased spending on your credit card will not necessarily affect your score in a negative manner; an increase in the current balance of your credit card indicates an increased repayment burden and may negatively affect your score.

3.      Higher percentage of  credit cards or personal loans(unsecured loans):

Having an unbalance mix in your credit portfolio of secured (such as auto,home loan) and unsecured loan (such as personal loan,credit card) will adversely affect your score.

4.      Opening many new accounts recently:

Back to back availing multiple loans and credit cards will make lenders view your application with most caution, because this behaviour of being credit 'hungry, increases your debt burden, negatively impacting your CIBILscore.

 What enhances your credit score?

You can maintain a good credit history by monitoring your credit report at intervals, paying bills on time, opting for moderate credits, maintaining a healthy combination of credits, and avoiding multiple loans, credit cards and new accounts, monitor your co-signed,guaranteed and joint accounts monthly. Maintaining a good credit history/score is important to avoid being rejected by banks.

Know your credit score

CIBIL allows you to obtain your score and CIR so that you can have a look at your credit rating. In case you want to view your score along with CIR, it will cost you in the following manner:

·CIBIL score and report- Rs.550/-

·Bi-annual subscription -2 score reports @ Rs.800/-

·Quarterly subscription-4 score reports @ Rs.1200/-

 Payment can be made online or through demand draft. You need to fill up the request form and provide identity, address proof, PAN and submit the documents to CIBIL. On receipt of documents and payment, CIBIL will send you across your credit score and CIR.

What does status like 'closed', 'settled' and 'written off' in your credit report mean?

'Closed': If you find a date adjacent to the 'Closed' field in your account section, this means that that loan account has been closed by the lender. In other words, it means you have paid off your loan in full and the bank has reported this account as "Closed" to CIBIL. 

'Written off' or 'settled': In case the report mentions that any of your loan or dues are 'written off' or 'settled', it adversely affects your credit score. Write off indicates that you have not made payment on your outstanding loan/dues for more than 180 days. Whereas, in case you settle the outstanding with an institution for lesser amount than original due, your account appears as settled,reflecting you paid less amount than actually due to them. Since both these statuses can impact your credit score, you need to ensure that there are no write offs and settlement to your loan account.

How to rectify information in CIR?

In case you find that any information in the CIR is inaccurate, you can approach the bureau to rectify the same. You need to identify the error in the report and appropriately report online through your "my CIBIL" account with your query. You further need to contact the concerned institutions against which the error is reflected and inform them about the error. You will be required to provide necessary proofs to substantiate your claim. Once the institution acknowledges the error and rectifies it, CIBIL will update the information based on revised data received from the institution. Since credit score will determine your future borrowings, it is important to ensure that all the loans taken are timely paid up. Further, one needs to restrict oneself from taking loans for mundane purposes and check his spending habits to have control on credit card dues. Financial discipline will go a long way in ensuring a good credit score. A good CIBIL score can play a very pivotal role in one's financial aspects. Few advantages are:

Ability to get credit easily.

Quick approval for mortgages.

Low interest rate credit cards.

More negotiating power.

Get approved for higher limits.

Easy approval for rented/leased houses and apartments.

Low interest rate home loans and car loans.