Credit Information Bureau (India) Limited is India's first Credit Information Company (CIC) founded in August 2000.
CIBIL collects and maintains records of an individual's payments pertaining to loans and credit cards. These records are submitted to CIBIL by member banks and credit institutions, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications. CIBIL was created to play a critical role in India’s financial system, helping loan providers manage their business and helping consumers secure credit quicker and on better terms.
Role of CIBIL in the loan approval process
CIBIL’s products, especially the CIBIL TransUnion Score and the CIR are very important in the loan approval process. The credit score helps loan providers quickly determine, who they would like to evaluate further to provide credit. The CIBIL TransUnion Score ranges from 300 to 900. Our data indicates that loan providers prefer credit scores which are greater than 750.
Once the loan provider has decided which set of loan applicants to evaluate, it analyzes the CIR in order to determine the applicant's eligibility. Eligibility basically means the applicant's ability to take additional debt and repay additional outflows given their current commitments.
Post completion of these first 2 steps the loan provider will request for the applicant's income proof and other relevant documents in order to finally sanction the loan.
What impacts your CIBIL score?
There are 4 major factors that affect your score
- Payment history
Making late payments or defaulting your EMIs or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.
- High utilization of Credit Limit
While 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.
- Higher percentage of credit cards or personal loans (also known as unsecured loan)
Having a balanced mix between the secured loans (such as Auto, Home loan) and unsecured loan (such as Personal loan, Credit Card) is likely to have a more positive effect on your score.
- Many new accounts opened recently
If you have recently been sanctioned multiple loans and credit cards, then lenders will view your application with caution because this behaviour indicates your debt burden has increased, which will negatively impact your score.
How can the CIBIL score be improved
You can improve your Credit Score by maintaining a good credit history. This will be viewed favourably by lenders and it can be done with 6 simple rules:
- Always pay your dues on time
Late payments are viewed negatively by lenders
- Keep your balances low
Always prudent to not use too much credit, control your utilization
- Maintain a healthy mix of credit
It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.
- Apply for new credit in moderation
You don’t want to seem Credit Hungry; apply for new credit cautiously
- Monitor your co-signed, guaranteed and joint accounts monthly
In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder's (or the guaranteed individual) negligence could affect your ability to access credit when you need it.
- Review your credit history frequently throughout the year
Purchase your CIR from time to time to avoid unpleasant surprises in the form of a rejected loan application.