Importance of a CIBIL™ credit score in getting loans in India

What is a CIBIL™ credit score?

Credit Information Bureau (India) Limited, commonly known as CIBIL™, is India’s first Credit Information Company or Credit Bureau. It maintains records of all credit-related activity of individuals and companies including all transactions on loans and credit cards. This extensive data enables lenders to make informed decisions on evaluating applications for loans in India.

The credit activity recorded could include details of every single loan or credit card repayment made (or missed or delayed); every loan or credit card application and corresponding approval or rejection; number and age of the credit accounts; total credit limit; credit balance and credit utilization ratio, among other detailed data. The records are submitted to CIBIL™ by registered member banks and other financial institutions on a periodic (usually monthly) basis. Based on this data, CIBIL™ issues a Credit Information Report or CIR (commonly referred to as a credit report) and a credit score.

A CIBIL™ credit score is a three-digit number between 300 and 900. It is based primarily on your current and past loan/credit card repayment history, among other factors. It gives potential lenders a snapshot of your credit health and your willingness and ability to repay your debts on time.

Your credit score is contained in your credit report which is a comprehensive document detailing your current and past credit activity. The better your credit history, the higher your score will be.

CIBIL™ is one of the four authorized credit bureaus in India which provide a credit score, the others being Equifax, Experian and CRIF High Mark.

In simple terms, your credit score gives banks/credit card companies a quick idea of how reliable you are in fulfilling your debt obligations. Based on your credit score, many lenders decide whether to approve your loan/credit card application.

Lenders generally look for a minimum score of 750 when reviewing your application because it signifies a low-risk customer who has demonstrated a good track record of repaying loans on time. You stand a good chance of being approved for a loan/credit card with a score of 750 or above.

Similarly, if you have a low banks are reluctant to lend to you as your score reflects faulty credit behaviour in the past. If you have a poor score, lenders will be unwilling to take a chance on potential defaults or irresponsible payment behaviour in the future and might decide to reject your application.

Lenders report every credit-related transaction to CIBIL™ on a monthly basis. This includes your

a. payment history (current and previous) on all your loans and credit cards

b. total available credit balance

c. number and age of your loan and credit card accounts

A complex mathematical formula is used to calculate your credit score based on this and other related data.

The biggest factor that makes up your credit score is your repayment history. Even one or two missed or delayed payments can negatively impact your credit score.

Your credit score is calculated taking into account all these factors and is an extensive analysis of your credit worthiness. Lenders rely on your credit score to give them an accurate idea of your credit behaviour. A good credit score reflects financial maturity and is an important factor in the evaluation of your loan or credit card application.

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Disclaimer

The 4 credit bureaus- CIBIL™, Equifax, Experian, and CRIF Highmark offer credit scores in India. The points mentioned above are true for credit scores from any bureau, not just CIBIL™.