Whenever banks process loans that people apply for, they refer to a ‘CIBIL’ Report. What is CIBIL?
Well, CIBIL stands for Credit Information Bureau of India Limited, and was established in August 2000. It is India’s first Credit Information Company (CIC).
The function of CIBIL is to collect and maintain records of every individual on various loans taken, as well as credit card transactions. It then shares this ‘credit history’ information with members such as banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies, to help them make ‘informed decisions’ on lending to individuals.
So, basically CIBIL is a repository of ‘credit history’ of millions and millions of commercial and consumer borrowers. As of date, CIBIL has around 400 million customer records.
If you note, I said ‘commercial and consumer’ borrowers, which means that other than individuals, even public companies, private companies, proprietorships, partnerships, trusts and others can obtain credit information relevant to them.
Thus, CIBIL plays a vital role in India’s financial system by assisting loan providers in managing their business, and also assisting borrowers to secure quicker credit, and on better terms, based on their credit history. The information is provided in the form of Credit Information Report (CIR), also referred to as CIBIL Report.
Please explain CIR.
A Credit Information Report (CIR) is an actual record of a borrower’s credit payment history, compiled from information received from different lenders.
The process starts with CIBIL collecting and maintaining records of an individual’s payments pertaining to loans and credit cards. On a monthly basis, such records are submitted to CIBIL by banks and other lenders, to keep them up-to-date.
This information is then used to create Credit Information Reports (CIR). CIR also populates a ‘Credit Score’, which is provided to the lenders — that is, the members — to help them evaluate and approve loan applications. Note that the ‘Credit Score’ ranges between 300 and 900 points.
Credit Score? What is that?
Credit Score is a three-digit number ranging from 300 to 900 points, which denotes a person’s credit worthiness, with 900 being the best score.
This three-digit number is derived from the CIBIL report of borrower through advanced statistical algorithms that take into account five major parameters — payment history, utilisation of credit limit, loan enquiries, type of credit, and new credit facilities.
The type of credit also refers to whether a loan is secured by an asset or not. For instance a home loan is secured by the house property against which the loan is provided. So is an auto/car loan. However, unsecured loans such as personal loans, credit cards, do not have any security attached, hence are considered ‘credit’ risky. The proportion of secured and unsecured loan also has an impact on this score.
Could you expound on the score, which you said can be between 300 and 900 points?
Okay. First, note that CIBIL Credit Score takes time to build-up — usually between 18 and 36 months or more of credit usage. Only then can you obtain a satisfactory credit score.
Therefore, if one is a new borrower, then CIBIL will create a new file. It will then be in the interest of the borrower to build up a favorable repayment track record for future loan or credit applications.
So, based on the credit usage and history, one can analyse CIBIL score as follows:
300-600 : Borrowers with credit scores in this slab are considered to be a ‘credit risk’ by banks and other financial institutions. In general, credit cards and loans will not be provided to people in this slab.
601-750 : This, being an intermediate range of scores, will allow borrowings from various lenders; however, banks may refer to overall financial position to ascertain creditworthiness such as stable employment, different sources of income, loan security, etc.
750+ : Scores above 750 are considered to be good to obtain loan or a credit card with ease. The advantage is that if Credit Score is high, one can leverage this to negotiate better or lower interest rates with lenders.
Usually, 90 per cent of loans are sanctioned for scores above 700.
Simply put, a good Credit Score helps banks determine credit-worthiness of those seeking to take loans and approve the loans/credit card applications faster.
Can I improve my Credit Score? If so, how?
This is a good question. Credit Score depends on various factors such as number and types of secured and unsecured loans, promptness in repayment of loans (home loans or retail loans) and credit card bills, new credit cards, both received and applied for, record of late payments and defaults, etc. So, to maintain a high Credit Score, one has to ensure the following:
Pay loan EMIs or credit card payments on time.
Pay Credit Card bills in full, rather than just ‘minimum due’ amount (occasionally, it is fine, but not always) .
Utilise approved credit limit properly.
Avail many forms of credit (both secured and unsecured) to have more credit history, and pay on time. Miss these points, and your credit score would be impacted.
Who can obtain the CIR?
Every borrower has right to obtain the CIR. Similarly, reports can be accessed by members, so they can take valid credit decisions while lending. The good part is that you can access a copy of your CIR by applying to CIBIL on their websitewww.cibil.com.
That is useful! How do I get it?
Just follow these simple steps:
Log on to www.cibil.com and click on ‘Buy your Credit Score’.
Fill up the online form which asks for details such as name, date of birth, address, ID proof, etc.
Make a payment of ₹500 using your debit or credit card, or through net banking.
After successful payment and authentication, the report will be sent to email you provided, usually within 24 hours.
Is my data secure? What are the measures taken by CIBIL to ensure its security?
CIBIL is ISO 27001:2005 certified, which is recognised as a high security standard in the world. It has adopted state-of-the-art technology to provide information security. Information in database is accessed only on a strictly ‘need to know’ basis and uses encryption to mask proprietary information to prevent it from being accessed by unauthorised individuals.
That’s a relief! But how do I ensure that a CIR created about me as an individual or my organization, does not contain negative information?
The ideal preventive measure is to exercise good money management practices and make repayments on time. However, despite this, if the CIR has not been updated with CIBIL due to error on part of the bank or financial institution, you can log on to www.cibil.com to get in touch with CIBIL online by clicking Dispute Resolution and get the error corrected.
CIBIL will rectify no sooner it is satisfied. Therefore, it is worth checking the CIR periodically, just as we do regular health checkups.
To read more from the FundaMental section, click here .