- HOW IT WORKS?
- Credit Score & Report
- Credit Bureaus
Generally, credit bureaus give out individual credit scores. A credit score is a summary of the credit report, capturing an in-depth credit history of an individual, both past and current. This information usually covers the credit history, number and type of accounts held by the individual.
In India, TransUnion CIBIL Limited (or CIBIL – Credit Information Bureau India Limited CIBIL) is one of the foremost credit bureaus licensed to operate by the Reserve Bank of India (RBI). CIBIL gathers and preserves records of an individual’s payments pertaining to credit cards and loans. Every month, member banks and credit institutions submit these records to CIBIL. Credit Information Reports (CIR) and credit scores are created using this information, which are provided to credit institutions to help evaluate and approve loan applications.
What is CIBIL:
A good CIBIL score is a crucial component of one’s financial life in India. The score usually represents the credit worthiness of an individual, i.e. both the individual’s willingness and ability to repay an outstanding debt. A “good” score is key to making your dreams come true and the parameters of scoring differ from lender to lender. It’s always wise to keep a tab on your credit score, because it does make a difference if you want to apply for a loan or a credit card. So, any incorrect piece of information may directly result in a low score.
History and origin, Formation and Growth:
Credit information system in India has evolved over time. Not so long ago, when the country’s economy was bullish and budding entrepreneurs were just about setting up their own businesses and firms. At this point in time, many banks were approached for loans. Hence, the credit information system felt the need of forming credit decisions on such profiles in order to aid risk management. This led to the idea of creating and maintaining individuals’ details in an efficient manner, so that they will be available for the financial institutions which will help in financial risk management.
The Reserve Bank of India found it necessary to create an adequate, comprehensive and reliable information system which will collect and maintain a database of borrowers. Hence, it necessitated the development of credit institutions in India and formation of representatives from banks like IDBI, ICICI, Indian bank’s Association and Reserve Bank in the year 1999, to explore all possibilities to form a Credit Information Bureau (CIB). This CIB was recommended under the Companies Act, 1956 with equity participation from commercial banks, FIs and NBFCs registered with Reserve Bank. After many discussions and recommendations, Credit Information Bureau (India) Ltd., (CIBIL) was set up in January 2000 was formed.
CIBIL was promoted by the State Bank of India, Housing Development Finance Corporation Limited, Dun & Bradstreet Information Services India Private Limited and Trans Union International Inc.
CIBIL’s impact on the Indian economy:
A borrower’s credit worthiness is assessed by banks. The borrower’s credit scores are given by the banks, and those scores decide whether the borrower is worthy of the loans or not. Lending institutions are able to assess and manage risks by reviewing credit information reports (CIRs). Now that many borrowers are looking for loans, they are able to access their credit reports and scores to better understand their chances when it comes to being approved for a loan. The awareness of credit scores and credit reports gives the borrowers an insight to building their credibility while opting for loans and work on improving their scores or reducing the chances of getting rejected for a loan.
What is CIBIL Score and Importance of CIBIL Score:
Generally, credit bureaus give out individual credit scores. A credit score is a summary of the credit report, it captures an in depth credit history of an individual, both past as well as current. This information usually covers the credit history, number and type of accounts held by an individual. CIBIL gathers and preserves records of an individual’s payments pertaining to credit cards and loans. Every month, member banks and credit institutions submit these records to CIBIL. Credit Information Reports (CIR) and credit scores are created using this information, which are provided to credit institutions to help assess and endorse loan applications.
A good CIBIL score is a crucial component of one’s financial life in India. The score usually represents the credit worthiness of an individual, i.e., both the individual’s willingness and ability to repay an outstanding debt. A “good” score is key to making your dreams come true and the parameters of scoring differ from lender to lender. It’s always wise to keep a tab on your credit score, because it does make a difference if you want to apply for a loan or a credit card. And any incorrect information may result in a low score.
How does it work? And On what segments does CIBIL provide a credit report?
A credit score of an individual is calculated through analytics, and a score between 300 and 900 is given by CIBIL based on his/her credit history. The higher the score is to 900, the better the credit worthiness of an individual. The credit institution will have more confidence in the ability and credit worthiness of the individual and hence, there will be more chances of the application to get approved. While each bank has its own credit score limit based on their credit endorsing policies and it has also been observed in the past that most customers with a CIBIL TransUnion Score of 750 or above that have bright chances of credit approvals.
Having said that each company has its own algorithm to calculate an individual’s credit score, while the most important elements of the score revolve around the loan or credit card payments history of an individual.
Generally, the score is computed depending on the following factors:
- Credit Utilization: It refers to how far the customer has gone into the limit given and how much of it was used?
- Delinquency: Delinquency over here refers to the accounts that are past due and by how many days?
- Trade Attributes: It refers to how well the consumer maintains a mix and balance of credit one has. Like is it only loans credit utilized or is it all credit cards only?
Is CIBIL the only credit bureau in the country?
CIBIL is one of the oldest credit bureaus in India, alongside Equifax, Experian and CRIF High Mark. They operate differently, but their algorithms are almost the same.
Is CIBIL a list of defaulters?
CIBIL maintains the credit history of individuals as reported by Member Credit Institutions only. An individual’s loan approval depends on the credit policy of the Credit Institution. An individual will be able to check one’s credit history in detail and to identify any possible discrepancies that may be reflecting on their profile. Hence an individual can purchase a CIBIL Score and Credit Information Report but there wouldn’t be any defaulters list as such. CIBIL doesn’t maintain a defaulters list.
What is the content of a CIBIL report?
A CIBIL report is a sum of an individual’s CIBIL TransUnion score, their personal data, employment history, contact information, and accounts held by the customer in the past and present.
Below is an overview of the CIBIL report:
- An illustration of CIBIL score is provided in the first section of the report. A CIBIL score is usually between 300 and 900; this usually depends on the payment history on the previous loans or cards which is shown on the report. The scores which are in between 700 to 900 are considered for approvals. It is considered the closer the score to 900, the greater the chances of repaying the loan, as the bank or institution providing the loan will be more confident. There would be a “blue bubble” which denotes a visual representation and some of the other information provided will be in figures.
- There would be a personal information section which is self-explanatory. It contains the borrower’s name, date of birth, sex, PAN number, passport, voters Id etc. as on records with CIBIL.
- There is a separate section with the contact details of the borrower like residence or permanent address, mobile numbers, telephone, and email address etc.
- One more section shows the employment details of the borrower, mainly the income of the borrower and the crediting details of that account.
- The account information section is the most important section of a CIBIL report. This section provides information pertaining to customer’s credit cards and loans, their lenders, their loans, credit cards etc. It doesn’t just stop here; it also shows the additional details of all the bank accounts held jointly held or single and the details of those accounts as well. The current balance, transactions and the amount of money going in and out of those accounts.
- There is one section which caters to enquiry information, that simply means it shows the details of vendors who might have enquired about the credit history of the customer in the past. Details such as vendor’s name, loan type, loan amount, start date of the loan etc. are reflected in this section.
- The above mentioned sections are the typical details furnished in a CIBIL report. That said, there might be information that might have been added or removed over time from the one mentioned in this article.
It’s imperative to maintain a healthy credit history, as it not only helps in getting loans and credit cards with low interest rates and is also an indicator of your financial well-being. On the contrary, any negative mark on your credit history can lurk around for many years and is difficult is get away with. So it is critical for you to consistently maintain a healthy credit history.
In India, Equifax is one of three credit bureaus authorized by the RBI and is one of the leading bureaus. So, having a decent Equifax score equates to a good credit score.
Like everything in life, maintaining a healthy credit history needs discipline and strategy. Follow the steps below and you will soon see your credit history blossoming.
- Timely Payments:
The better your repayment record, the higher your credit score. Your repayment record is pivotal in maintaining a decent credit score in that it makes up about 30% of your credit score. Therefore, it’s imperative that you pay off your credit card bills and loan EMIs in full and on or before the payment due date in order to maintain a steady credit score. On the contrary, every single delayed, partial, or missed payment is reported to the credit bureau. Do this too many times, and your credit rating is in trouble.
- Schedule your payments:
Schedule your payments to ensure you don’t miss or forget repayments. For instance, you can set up a standing instruction to debit a certain amount every month at a certain date to pay off your credit card bill. Similarly, you can also avail auto-debit feature offered by certain banks. This ensures your payments are regular and your credit score is on a healthier scale.
- Keep your information current and review periodically:
- Ensure your credit information is current and updated. Even minor changes like phone number and address, should be informed to the credit bureau.
- It is vital to review your credit report from time to time, as sometimes the report might contain errors resulting in your score being unusually low. For instance, the report may not include your newly closed loan account.
- Low balances:
Keep your credit line utilization low. It is also important not to spend too close to your credit limit consistently – ensure that you spend less than 50% of your total credit limit.
How can a customer maintain a good credit history?
Refrain from applying for multiple loan products or credit cards around the same time, as such application leads to an enquiry of your credit history and score. Too many enquiries in a short span can be detrimental to your credit score, as it can portray you as being desperate for credit. So, apply for credit only when you think you have the best chance of approval. If your credit score is on the lower side, it’s sensible to wait and improve your score before applying for a credit card or a loan.
- Credit line diversification:Rather than having a single product, it’s always good have a blend of unsecured and secured credit products like credit cards and loans to better maintain your credit history, so long as you pay your bills on time. A secured loan comprises collateral, for instance a gold loan, home, or an auto loan. On the contrary, unsecured credit does not involve any security or pledging like a credit card or personal loan. Managing both secured and unsecured credit well usually bolsters your credit score, as opposed to managing just one type of credit.
- Credit usage:Not having any credit cards or loans does not necessarily mean you have a good credit score. Lenders typically would like to see a history of good repayment record, which is only possible if you use credit and repay dues on time over a period of time.Naturally, lenders consider someone with no credit as riskier than those who manage credit cards responsibly.
Who provides credit information to CIBIL?
A record of all credit card and loan payments of an individual is collected and maintained by CIBIL. Financial institutions like banks and other lenders, submit this information to CIBIL, on a monthly basis. Credit scores and Credit Information Reports (CIR) are then generated from this information, which in turn are provided to lenders for evaluation of loans and credit cards.
1. What is CIBIL?
TransUnion CIBIL Limited (or CIBIL – Credit Information Bureau India Limited CIBIL) is one of the foremost credit bureaus licensed to operate by the Reserve Bank of India (RBI). CIBIL gathers and preserves records of an individual’s payments pertaining to credit cards and loans.
2. Who prepares the CIBIL score or report?
The report is obviously prepared by Credit Information Bureau (India) Limited. The report is prepared based on the financial behavior of a customer. Hence, the bureau receives information from financial institutions or banks about your credit behavior patterns which will then decide the scores and those will help in creating credit report.
3. How does your CIBIL score/report matter?
CIBIL score or report plays a very important role in an individual’s financial life. So much so that lenders totally rely on the reports to assess the credit worthiness and as to how much credit they can give you. So it’s always better to be on the higher side of the credit score because there will be brighter chances of getting credit approvals or else they would not trust you with their lending. A higher score will also help in getting some of the best interest rates.
4. What’s a CIBIL score?
An entire summary of an individual’s credit history is usually referred to as Credit Score or CIBIL score. CIBIL Score is a three-digit numeric summary of one’s entire credit history. This score is the resultant numeric summary derived from the information provided in the Credit Information Report (CIR). This score normally ranges between 300 and 900.
5. How do high and low credit score affect a credit profile?A profile which has a high credit score has brighter chances of loan approval whereas a low score reflects low credibility resulting in less credit approvals.
6. How does checking a score have negative effect on the credit score or report?
There are different ways of checking the scores. If an enquiry is done just to know the credit standing it is called as a “soft inquiry” which will not have any impact. But in case there is an inquiry done by credit card lenders it is called as “hard inquiry” which will impact your score to an extent. When there are numerous loan requests by a customer then there can be a negative impact on the score.
7. Is CIBIL the only credit bureau in India?
CIBIL is one of the oldest credit bureaus in India, alongside Equifax, Experian and CRIF High Mark. They operate differently, but their algorithms are almost the same.
8. Can you get a CIBIL report online?
CIBIL report comes with a cost and an individual has to make a payment of 450/- or so approximately to get a report. One has to fill an application online by giving some of their details and has to make a payment also online. Once the online application is processed the report can be emailed.
9. How do you correct errors in your CIBIL report?
There was a recent update from RBI stating the customers should be given proper access to their reports as in when requested. One can contact CIBIL through their website contact details and can check for any sort of mistakes in it.
CIBIL Introduces New System That Will Increase the Bank Customer Base by 15 Lakh Per Annum
7 June 2017: CIBIL will now help banks increase the customer base by 68,858 every year. The new system called the CreditVision is algorithm based and is said to increase the credit opportunities considerably. It studies data intensively and reveals payment and spending behaviour. This information is based on past 36 months credit habit and identifies customer behaviour closely.
The data will help expand the credit market, yet be cautious and careful about who is utilizing this opportunity. CIBIL calls it the game changer in the Credit Industry. This system will define the lending strategy of India and is a much-needed tool, for a nation which is burdened with recognized Non-Performing Assets.
CIBIL launches CreditVision to help banks increase their consumer base
2 June 2017: The Credit Information Bureau of India (CIBIL) on Wednesday launched a new product – CreditVision – to help its member banks increase their consumer base.
Synonymous to its name, the visionary product, looks at the past credit behavior of a consumer, studies his spending habits, payments and exposures. With this, it predicts risks and guides the banks to create credit opportunities for the consumer.
MD and CEO of the TransUnion Organization, Satish Pillai said, “with the launch of this product, we reinstate our commitment in supporting our member institutions on driving profitable business growth and credit penetration by providing credit access to many more deserving consumers.”
He further talked about the ever-changing new age algorithms. He said that they are a definite game changer for the credit industry which further pushes market expansion to phenomenal heights.
As per the company, launch of CreditVision will enable credit access to additional 15 lakh borrowers every year without putting banks into risks.
It added, “These borrowers could provide banks an incremental asset size of around Rs 68,858 crore, at a low delinquency rate”.
Apart from these, Pillai said, that the algorithm has identified another set of around 20 lakh consumers who currently have access to banking credit but will become eligible for higher loan-to-value after the launch of CreditVision.
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