Banks and non-banking financial companies (NBFCs) check their credit score or CIBIL score before providing various types of loans or advances to any individual or institution. This is an advance step to measure credit risk.
Let us read in this article what is CIBIL score? How is it calculated? How much CIBIL score is considered to be correct etc?
What is CIBIL score?
The full form of CIBIL (CIBIL) is Credit Information Bureau of India Limited which is also known as TransUnion CIBIL Limited. It is a credit information company or credit bureau. CIBIL was established in the year 2000, out of 4 credit information companies operating in India, CIBIL is the main and most ancient credit bureau.
The CIBIL Credit Bureau maintains a database of Borrower and Lender in its system, in which all participating banks provide credit service applications (loans, credit cards etc.) and loan repayment information every month. CIBIL manages the financial profile of individuals and institutions and maintains all the loans, credit card details associated with them and sets a credit score based on the record of payment.
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What is CIBIL score?
CIBIL determines a 3 digit score according to the historical record of financial transactions of individuals and institutions by computerized calculation and their ability to repay debt. These scores are checked by banks and other financial institutions before any loan is given. If a loan customer’s CIBIL score does not fit in the bank’s credit policy, then his loan application is canceled.
We should always be serious in this poison that our CIBIL score should not be less than normal (700-800). Your CIBIL score is looked at not only for loans but also visas for many countries. Travel agents and middlemen forward your visa application only after checking your CIBIL. Apart from this, the CIBIL score is also seen in the verification done before the job in some good private institutions.
The CIBIL score is calculated according to your credit transaction, for example, how many banks or NBFCs have you contacted in the past to get a loan? Are you able to pay your current loan or credit card monthly on time? Or how much money are you paying to the loan and Credit Card Company in return for your annual income? Keeping all these factors in mind, your credit worthiness is checked by taking your loan back. For your ease, we have written down the main factors that affect the CIBIL score.
- Number of loan/credit applications
- record of EMI payments and credit card payments
- What are the types of current loans? What is the percentage of Unsecured & Secured Loan
- Credit utilization – that is, how much of the revenue is going to install payment
- Is there any payment default or recovery
The computer algorithm calculates the combined score of all these and gives a 3 digit score between 300 to 900. This 3-point score is considered as a 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.
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How much CIBIL score is considered correct?
As we have known, the CIBIL score of every person and company is different and keeps swinging between 300 and 900. Let us know how much CIBIL score is considered in which category?
300 – 600
This is the first category that is not considered good, customers falling into this category abandon the idea of getting a new unsecured loan or card and immediately start trying to improve their credit score.
601 – 749
Above 600 and below 750 is considered a second category, which is considered normal, it is possible to get secured loans for those around a score of 600 points and may consider taking an unsecured loan or card of 700 to 750.
If your credit score is above 750, you are eligible for congratulations. This is a category of high-end customers. You get a new loan etc. easily. But still, you are cautious and use 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 see your loan repayment ability. 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 keep in mind that there are any irregularities or errors in their credit behavior. If you ignore these things then it has a negative effect on your CIBIL score and it is likely that you will face problems while taking a loan in the future.
We are writing below some tips which will help you in maintaining a good credit score broadly:
- Do not take a loan without any need, if borrowing from friends and relatives can be a matter then keep this option first
2. Do not apply for a loan in many banks at one time
3. Pay your loan and credit card payment in advance
4. Knowingly avoid any type of default
5. Do not become a co-applicant or guarantor in a loan with those who do not believe
Questions related to CIBIL and Credit Score – Answers
Is the CIBIL score required before taking a loan and credit card?
Yes, every bank checks the eligibility of the applicant before giving the loan. The CIBIL score is one of its important points, banks give loans easily to those with good credit scores.
Does the CIBIL score never recover once it has deteriorated?
It is not so, if you are able to slowly repay all your loans regularly, then the CIBIL score is also corrected.
How can I view my CIBIL report?
You can check your CIBIL report for free from the official website of Transunion CIBIL. There are many websites on the Internet that claim to provide CIBIL reports for free, as a precaution you should check the CIBIL score from the official website.
Are there more credit bureaus besides CIBIL?
Yes, besides CIBIL in India, there are 3 other credit information companies that provide credit scores. Whose names are Equifax, CRIF Highmark, and Experian?
Does CIBIL also indicate the credit score of the company or firm?
Yes, CIBIL also produces credit reports of companies.
Today’s information is dominated by technology, due to which credit score is a good facility for banks and other lenders. It is also a good tool for the loan applicant to know their creditworthiness. With this help, we know how our credit transaction is and where we need to improve.
Keeping all these things in mind, we should use 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.