Banks and Non-Banking Financial Companies (NBFCs) check their credit score or CIBIL score before providing various types of loans or advances to any person or institution. This is an advance step of measuring credit risk. Credit Information Bureau (India) Limited (CIBIL) is a Credit Information Company, which was incorporated in August 2000. It has been promoted by State Bank of India, Housing Development Finance Corporation Limited (HDFC), Dun & Bradstreet Information Services India Private Limited and TransUnion International Inc.
To know the CIBIL score of an individual, the borrower must first obtain a copy of his/her credit report from CIBIL. The credit report is an important document that provides information about the borrower's credit history. Once the borrower gets the credit report, he/she can find out his/her CIBIL score in it.
The report contains detailed information about the repayment history of loans and credit card payments made by an individual in the past. It also has in it details relating to any defaults made by the individual on payment of dues on time including penalty charges incurred due to non-payment, if any.
A lender will use this information to ascertain the default risk associated with a borrower while granting him/her loan and advances.
What is CIBIL?
CIBIL stands for Credit Information Bureau of India Limited, also known as TransUnion CIBIL Limited. It is a credit information company or credit bureau. Cibil was founded in the year 2000, cibil is one of the main and most complete credit bureaus among the 4 credit information companies operating in India.
Cibil Credit Bureau maintains the database of borrowers (credit consumers) and lenders in its system in which all participating banks provide credit service applications (loans, credit cards, etc.) and loan repayment notices every month. CIBIL manages the financial profile of individuals and entities and maintains the details of all the loans, credit cards associated with them and decides a credit score based on the record of payments.
What is Cibil Score?
Cibil sets a 3 digit score according to the historical records of the financial transactions of individuals and institutions by computerized calculations and their ability to repay their loans. this score is checked by banks and other financial institutions before giving any kind of loan. if a loan customer's sybil score does not fit into the bank's credit policy, his loan application is rejected.
We should always be serious about this poison so that our cibil score is not less than normal (700-800). not only for loans but also for visas from many countries, your cibil score is looked at. travel agents and middlemen forward your visa application only after checking your cibil. apart from this, cibil score is also seen in the verification done before giving a job in some good private institutions.
How Is The Cibil Score Calculated?
Cibil score is calculated according to your credit behaviour, for example, how many banks or NBFCs have you approached in the recent past for getting a loan? Are you able to make monthly payments of your current loan or credit card on time? Or how much money are you defaulting on to the loan and credit card company in lieu of your annual income? Keeping all these factors in mind, your ability to repay your loan is checked . The main factors that affect the CIBIL score for your ease are listed in the list below.
- Number of loan/credit applications
- Track record of emi payments and credit card payments
- What type of current loan are there? What is the percentage of unsecured & secured loan?
- Credit utilization – that is, how much of the income is going into payment
- There is no payment default or recovery going on anywhere
- The combined score of all of these is calculated by computer isolation and provides a 3-digit score between 300 and 900. This is the 3-point score you consider cibil/credit score. The higher the score, the better your credit profile will be considered, and the lower the score, the more credit risk will be added to your profile.
How Much Cibil Score Is Considered Correct?
As we have known, the cibil score of every individual and company is different and keeps swinging between 300 and 900. Let's know how much cibil score is considered in which category?
This is the first category that is not considered good, customers falling in this category give up the idea of taking a new unsecured loan or card and immediately start trying to improve their credit score.
Above 600 and below 750 is considered to be the second category which is considered normal, those around the score of 600 points can get a secured loan and those with 700 to 750 can also consider taking an unsecured loan or card.
If your credit score is above 750 then you deserve congratulations. it is the category of high-class customers. you can easily get a new loan etc. but still, you should be cautious and use the credit facility thoughtfully. a score above 750 does not even mean that you can get the loan amount you want and the bank will not look at your ability to repay your loan. the loan amount will be decided according to your repayment capacity.
How to improve your CIBIL score?
A good cibil score is considered to be 750 points or more, consumers should always make sure that there are no irregularities or errors in your credit behavior? If you ignore these things, it has a negative impact on your cibil score and it is possible that in the future you will have to face problems while taking a loan.
We are writing down some tips that will help you maintain a good credit score broadly:
- Don't take a loan without needing to, if borrowing from friends and relatives can make a point, then keep this option first.
- Do not apply for loans in too many banks at a time.
- Pay your loan and credit card payments ahead of time.
- Avoid any kind of default unknowingly.
- Don't become a co-applicant or guarantor in a loan with those who don't trust them.
In today's time, information technology is dominated, due to this, credit score is a good facility for banks and other lenders. at the same time, it is also a good means for the loan applicant to know their credit eligibility. with the help of this, we know how our credit transaction is and where we need to improve.
Keeping all these things in mind, we should use the credit services carefully and pay the loan on time. otherwise, in the future, banks will either refuse to give us loans or provide loans at expensive interest rates.
If you have any questions related to credit score or CIBIL report, you can ask by writing in the comment section below. If you like the article, share it with your friends.
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