In case you are planning to go and get a new credit card or apply for a loan, you might hear about the terms CIBIL Report and CIBIL Score being thrown around casually. You might even have been told that if your CIBIL Score is less than a pre-determined limit, your application will get rejected. As there are numerous myths surrounding the basics of these important concepts, in the following sections we will discuss some of the key features and basic information of these.
CIBIL Score is actually a contraction of the term CIBIL TransUnion score and it is one of the most commonly used scores when determining your eligibility for a loan or a credit card. As the name suggests, it is a number, in fact, a 3 digit number ranging from 300 to 900 that sums up your history of borrowings. The important point to note here is that only previous borrowings i.e. loans and credit cards are taken into account when calculating the score, so your account balance and assets such as investments or property play no role whatsoever when assigning you a CIBIL score.
The formula used to calculate a score is proprietary information hence the exact details of how CIBIL score is calculated is not available to the general public; however, as long as you have paid your previous EMIs and credit cards bills on time, you would have a high credit score. The closer your CIBIL Score is to 900, the better your chances of being approved for a new loan or credit card. You should however keep in mind that the CIBIL score range is specific to the CIBIL TransUnion Score and does not hold true for credit report prepared by Equifax or Experian.
The CIBIL score is calculated by a leading credit bureau in India named CIBIL in association with TransUnion, a globally recognised authority engaged in creating credit reports and scores. CIBIL full form is Credit Information Bureau India Ltd., which is India’s first CIC (Credit Information Company) which initiated operations in the year 2000. In order to calculate the score, CIBIL uses information regarding credit cards and loans from various NBFCs and Banks operating in India. Currently, the organisation is engaged in providing scores for consumer CIBIL for individuals as well as commercial CIBIL for businesses operating in India.
A CIBIL score check can be made both online and well as offline through post by requesting a copy of the CIBIL Report. All you need to do is send a request to the credit agency by filling up their online request form and paying their fees or sending a request by post with a bank draft for the specified amount through post. In case you request your CIBIL score online, you may get a digital copy of your CIBIL report within the next 48 hours, while the physical ones sent through post may take between 2 to 4 weeks to reach you. In case you are wondering how to get your CIBIL Score online for free, the bad news is that the provision does not currently exist however you can get your free Experian and/or Equifax credit report through sagunfinance.com
Your application for a new credit card or loan is highly dependent on your credit score. Here’s a breakdown of how your score can impact the chances of your application’s approval :
New Borrower - 1-5: As first-time borrowers do not have a credit profile, they are classified on a risk index scale of 1 to 5 by CIBIL TransUnion. Herein, “1” refers to the highest risk of default while “5” indicates the lowest risk.
Bad – 300-599 : This is a bad (low) CIBIL score and the chances of being approved for a new loan or credit card are slim in this case. Reasons for getting this score include late payment of loan EMIs and credit card payments.
Good – 600-799 :If you are planning to apply for a new credit card or loan, this score offers a good chance that your application will be accepted. A score in this range shows that you have handled your previous borrowings judiciously and are a safe borrower.
Great – 800-900 :This score puts you in a sweet spot. It reflects a perfect track record of repayments with respect to all your previous borrowings, meaning you get the best offers on loans and credit cards available from various lenders.
The primary reason to know your credit score is to gauge your eligibility for new loans and credit cards. The primary way a credit bureau in India such as Equifax, Experian and CIBIL TransUnion maintains records is via an individual’s PAN or permanent account number. Hence to perform CIBIL check via PAN you must have a valid PAN card, which is a pre-requisite for availing loans and credit cards through traditional banking channels. If you know your credit score, you can gauge if you are eligible for the loan or credit card that you are seeking. This would definitely improve your chances of approval and help maintain a high credit score because your score may get a hit if your application for a new loan is unsuccessful.
It might already be apparent that having a high CIBIL score is of paramount importance for the average person who intends to apply for a new borrowing instrument. Due to the importance of this, many a financial advisor has set up shop as self styled CIBIL score improvement agency, however in many cases, the advice offered by them is the same as that you can find for free on any financial website. The simplest action that can help you maintain a high score is through timely payment of your credit card bills and EMI.