CIBIL stands for Credit Information Bureau (India) Limited, in its type, it is Indias premier Credit Information Company (CIC) came into existence in 2002. This is integral part of Indian banking and finance system that avails the facility to find out their credit score. Credit Information Bureau (India) Limited is an ISO 27001:2005 company that works in association with TransUnion International Inc. and Dun and Bradstreet to collect specific information and records about customers of special bank or financial institutions and submit that record to that agency for further processing. CIBI Score represents to numeric graph of customers credit history at the same time CIBIL report represents to customers transaction record as per their credit history. There are two major segments in CIBIL score one of them is commercial bureau and consumer bureau. CIBIL is working with full dedication to provide best possible services for customers and help them to take their financial decisions quite wisely.
We have heard this term a lot of times, but, what exactly it is all about? A CIBIL or Credit report is a three-digit numeric ranging from 300 to 900 representing the summary of your credit history with banks and other financial institutions. The score is an individuals credit clearance history across different category loans and credit institutions over a period of the tenure. The digits do not contain any confidential details of the savings, investment, or account details, but, it only represents whether the candidate is liable to get loans and/or credits in future or not. Poor credit score (less than 650) means lower chances of getting the loan approval in future.
Credit Information Bureau India Limited, commonly known as CIBIL, is a company licensed by the RBI (Reserve Bank of India) is Indias first credit information bureau company that records all credit-related details of the individuals and companies. The loan and credit details of an individual are submitted by the registered banks and financial institutions on monthly basis to the credit information bureau, the company then records and maintains the details and generate a three-digit number based on the payments pertaining to credit cards and any other type of loan. This score is then considered for approving loan applications.
Since, the origin, credit information system has been advancing. The system is launched in just last few years, before that, the economy system of the country was bullish and budding entrepreneurs just kept commencing their own trade and firms. They use to approach several banks at a time and did fraud with the financial institutions. At the same time, the need for launching the system was felt to form specific credit decision on such loan applications in terms of aiding risk management. This led to the idea of keeping and maintaining loan details of an individual in a way that financial institutions can manage the risk of defaulters. The Reserve Bank of India found it crucial to create accurate, comprehensive, and reliable credit information system to record and maintain a precise database of borrowers. Hence, in the year 1999, Reserve Bank in association with IDBI, ICICI, and Indian Bank developed a reliable credit information system. The CIB was suggested under the Companies Act, 1956 along with equity sharing from commercial banks, NBFCs, and other Financial Institutions registered with RBI. After a lot of discussion and proposals, CIBIL was finally set up in January 2000.
Trans Union International Inc., Housing Development Finance Corporation Limited, State Bank of India, and Dun & Bradstreet Information Services India Pvt. Ltd. promotes this credit system of India.
Earlier, people use to take loans from different financial institutions at the same time and default the payments, but, with the launch of the credit information system, banks can easily access a borrowers credit worthiness. The CIS provides a credit score of the borrower to the banks and this score decide whether an individual is accountable to get the loans or not. Lending institutions can now easily access the borrowers score and manage risks by reviewing credit information reports (CIRs). This also removed the carelessness of the borrowers to pay back the loan amount and created awareness among them to build and improve their accountability while opting for financial borrowing. Indian economy has experienced a positive change as now people pay their installments on time to reduce the risk of loan application being rejected in future.
A credit score determines the worthiness of a borrower to get a loan approved. You can take it as a report card of a student as for whether he/she will get an admission to the particular college or not. The reporting system analyzes the entire credit information of a borrower, in past and current as well, and generates a three-digit number ranging from 300 to 900 to quantify the financial accountability of an individual. So, by knowing the score, an individual can easily evaluate where he or she stands to get a loan application approved. However, the report does not only contain the credit score, but, also counts for CIR, income, and existing loan obligations. Also, the loan approval depends on the credit policies of individual banks. Suppose, the score is 450 and Bank A rejects the application, but, at the same time, Bank B approves the application, although at higher interest rate than usual.
Undoubtedly, the most crucial factor is the repayment history. In fact, repayment history covers about 30% of the entire score. Therefore, the financial analysts always suggest paying off the installments and other borrowings right on time and in full, of course, to form an influencing credit score. However, other factors include:
Percentage of timely payments
The more you make timely payments, the better will score be. Percentage of timely payments is the most vital factor to improve the lending score and thus, it is most considered while calculating the score to denote the reliability of a borrower. Banks and other financial institutions assure that you are likely to make timely payments. Even one or two installment bounce can signify that you cannot make timely payments. Therefore, pay all credit card bills, EMIs, and any other debts on time, in order, to gain a good score.
Number of negative marks
There are certain factors that are counted for negative marks such as accounts in collection due to default payments, foreclosure, written off or settled status, and so on. These negative marks can be a heavy loss for the score and could probably strictly restrict the eligibility of the default borrower. Negative marks mentioned in the score will indicate that a borrower fails to manage their debt adequately, which will serve as a warning sign to potential lenders and ultimately, the loan application will be rejected. Even if a borrower wishes to overcome the negative marks, it may take years for it.
Tenure of credit history
When a borrower has a long-term credit history, financial institutions make double-sure of having detailed and substantial information for the credit behavior of a borrower. For example, if you are holding a credit card from last ten years, registered financial lenders will check your repayment record for the card for a specific period of time.
Number of hard enquiries
When a potential money lender or credit card issuer checks the CIR to determine the accountability of loan approval, it is termed as hard enquiry. A single hard enquiry slightly reduce the credit score, but, the same for multiple times without equivalent loan approvals denote that you are applying for a credit to several lenders in order to get the approval at least from one. Therefore, increased number of hard inquiries is another factor to influence the good score and thus, high degree of inquiries in a limited time frame ultimately decreases an individuals credit score.
a. A borrower has to fill up the loan application form and submit it to the bank or money lender institution
b. A potential lending authority will check the CIBIL score and report of an applicant
c. If an applicant has a score less than 650, then it is likely to get the application rejected
d. If the score comes out higher than 650, then the eligibility criteria of an applicant is checked along with the mandatory documents submitted by the candidate.
Well, this is a major concern among so many applicants whose loan application got rejected even after having a good CIBIL score. It may sound weird, but, its true that an application can be rejected for so many other reasons, other than a credit score and report.
o Too many loans earlier If the lender notices that an applicant has already taken too many loans previously, then probably there are chances of getting the application rejected.
o Constantly switching jobs Banks are very strict in terms of borrowers job stability and if a candidate is a frequently switches the job, the loan application will be rejected for sure. Thus, stick to a job at least for more than two years.
o Going for a joint credit with sister or friends Banks dont approve the application for joint loan with sister or friends, though the same can be approved when applied with brother or parents.
o Being a loan guarantor to a defaulter People generally become a loan guarantor of their friends and relatives without being cautious that if the person, they are signing a guarantor application for, fails to pay the loan amount right on time, then the score of the guarantor will also get affected. Banks usually dont approve the applications of loan guarantor of a defaulter.
o Loan application rejected previously If an applicants application has been rejected earlier, it goes into the credit records and other banks and lending institutions check for such records. Thus, if a request is re-applied, there is lots of possibility of getting it disapproved.
o Poor CIBIL score of co-applicant If you are requesting for a joint loan approval, make sure that your co-applicant too has a good score; otherwise there are high chances of getting the request rejected.
o Having the same residential address as of the defaulter Debt applications are checked very precisely, so, if the residential address matches with the defaulters address, then the request will surely be rejected.
o No demonstration of savings If your debt request has been rejected and you are unsure about the exact reason for it, then first of all, check your saving account details because many a time, a loan application gets rejected if an applicant fails to maintain their saving accounts with a minimum balance.
o Frequently changing residential address If an applicant frequently keeps moving from one residential address to another, there are high chances that the request will get refused.
o False documents As mentioned above as well, banks are very specific in terms of precisely checking every single detail of an applicant and the documents submitted, if any of the documents is found to be untrue, the loan application will get disapproved because falsified documents imply that a person is trying to bluff the lender.
o Making frequent quote request If a person makes frequent quote request then it is considered that a person is desperate to get the loan. This is being another factor to influence loan application disapproval.
o Avoiding verification calls Verification calls are one of the important application process, so if a person ignores to answer the verification calls, the request will probably get rejected.
a. Know and understand Once the request is disapproved, first of all, know and understand the reason for it. According to the norms of RBI, a bank is not liable to reject the application without furnishing a valid reason.
b. Re-check your CIBIL score Undoubtedly, low credit score is a major reason for debt request disapproval, so check for your current credit score and make sure to fix it soon, in case the score is low.
c. Make an error check Re-check if whether you have submitted updated and accurate documents or not. A credit report counts for the demographic, credit account details, and payment history, therefore, also make sure that the information linked is error-free. If there is any error found, request the CIB (Credit Information Bureau) to rectify the error.
To increase your CIBIL Score do following process as per bank recruitment: -
a. Pay your regular bills on time to improve your credit score.
b. Never leave any remaining amount.
c. Always pay your EMI on time.
d. Keep your credit limit stable for better credit history.