What is CIBIL? - Full Form, Meaning & Importance

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What is CIBIL Understand Importance and How It Works_WC

6 min 31 Jan 2024

Highlights:

Overview of CIBIL Score
Know the Ideal CIBIL Score
Factors that Affect Your CIBIL Score
Difference Between Credit History Credit Report in CIBIL
Importance of a CIBIL Score

CIBIL, more concisely TransUnion CIBIL Limited, is one of the leading credit information companies (credit bureaus) in India. Its primary function is to provide credit reports and credit scores for individuals and credit ranks for companies known as the CIBIL score.

CIBIL score measures a person’s ability to repay a loan amount. It is denoted by a three-digit number ranging between 300 and 900. An ideal score should be one closer to 900 since it improves the chances of access to credit products, like loans and credit cards.

What CIBIL Score Lenders Expect You to Have?

As per lenders and financial institutions, a CIBIL or credit score above 750 is considered good. A CIBIL score higher than 750 typically projects the borrower as responsible and reliable when it comes to loan repayment. The credit score is composed of 30% payment history, 25% credit exposure, 25% credit duration and type, and the remaining 20% of other miscellaneous factors.

How Does CIBIL Score Work?

Once borrowers have established what is a CIBIL score, they should also know how it works. CIBIL score fluctuates constantly based on the credit history and overall performance. Listed below are some parameters on which CIBIL score is based. These are:

Payment History

Borrowers having a previous credit history with timely repayments, such as that of a credit card or a personal loan, have a better chance of having a good CIBIL score. The longer the history, the better the score. On the contrary, simply having a long credit history is of no avail if it is marked with payment delays and defaults.

Credit Mix

To maintain a high and decent score, it is important for the borrower to have a healthy mix of unsecured and secured loans. Secured loans refer to car loans, Home Loans, etc. while unsecured loans include personal loans and credit card bills.

Loan Enquiries

The CIBIL score is affected by multiple credit or loan enquiries or rejections. A borrower availing of multiple loans naturally has a huge debt to pay. This negatively affects their credit rating and warns lenders about probable loans in future.

Over Usage of Your Credit Card

CIBIL score is largely affected by higher credit usage. Therefore, one should try and keep credit utilisation low. The higher the credit usage can impact your credit score.

CIBIL or the Credit Bureau assigns an updated score to all based on the above parameters. When a person applies for a loan, the lender assesses the updated CIBIL report and scores for financial credibility. The loan is sanctioned immediately provided they qualify the requisite criteria.

Credit Score vs. Credit Report in CIBIL

Parameter of Comparison	Credit Score	Credit Report
What is it?	It is a numerical value between 300 to 900.	It is a report of all your credit-related transactions and account information.
What does it contain?	It is a summary of all your information.	It has four categories: identifying information, credit accounts, credit inquiries, and public records.
Can I change it?	You can’t raise a dispute on your credit score.	You can raise a dispute if you find any discrepancy in your report.
How many times can I check?	Your Credit score can be referred to for FREE throughout the year any number of times.	You are entitled to one FREE credit report each year by every Credit Bureau after which you may have to pay a negligible amount to download one.
What category of enquiry is it?	Falls under soft enquiry	Falls under hard enquiry
When is it referred	To identify your loan eligibility	To approve your credit application
Where can I find it?	On CIBIL or lender's website	On CIBIL or lender's website

Additional Read: Difference Between Credit Score and CIBIL Score

Reasons Why CIBIL Score is Important

The credit score is the representation of one’s credit health. It offers the lender a brief idea of one’s repayment capability. To elaborate further, here are the top reasons why the CIBIL score is essential:

Credit Status

The credit report and score update the borrower on their current status and how to improve it further. The CIBIL report summarises one’s past and present credit transactions. Regularly monitoring the report thus helps rectify any discrepancies that may have led to a low CIBIL score.

Loan Eligibility

As mentioned, lenders and financial institutions generally consider a CIBIL score of 750 and higher as ideal. Therefore, it is necessary to build and maintain a healthy credit score that guarantees loan eligibility and makes approvals easier.

Creditworthiness

One of the most important aspects of the CIBIL score is creditworthiness – the ability to manage finances. With a good record of credit history, loan approvals are usually prompt. The best way to increase your credit score is to pay off bills and credit card dues on time.

Application Approval

The CIBIL or credit score reflects how well the borrower pays off loans on time. This helps the lender decide how big an amount should be granted so that the borrower does not default on payments. With a score lower than 600-650, the lender may be reluctant to approve the loan application thinking they have missed paying the loan on time and have accumulated a rather huge debt. To get quick approvals on credit cards and upcoming loans, the objective should be to improve the score. This will also help better one’s overall financial standing and lower the risk of incurring debt.

Competi Rate of Interest

The higher the CIBIL score, the lower will be the loan interest. This is because lenders and financial institutions consider the borrower’s profile impressive and worthy of paying the loan amount going by the records. Besides, competitive interest rates imply better financial stability, which encourages borrowers to apply for housing loans if needed in the future.

Loan Amount

The CIBIL score determines the amount of funds to be borrowed. If the score is higher than the requirements of the financial institution or bank, then the customer is considered eligible to borrow a larger amount. This means a decent CIBIL score will prove beneficial when purchasing a car or a house.

Longer Repayment Tenures

With a good CIBIL score, one can enjoy longer repayment tenures, which makes it easier to pay off loans on time. However, in such cases, the rate of interest may be relatively high.

Also Read: Steps to Check CIBIL Score Using PAN Card

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