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What is the CIBIL Score?

We learnt last week that the Credit Information Report (CIR) summarizes your payment history of loans and credit cards borrowed from all banks and financial institutions. Based on this credit history, a ‘Credit Score’ is generated. The CIBIL Score is a 3-digit number ranging from 300-900. The closer your score is to 900, the stronger your credit profile.

A Credit Score plays a critical role in the loan and credit card approval process. This is the first screening criterion applied by banks and financial institutions when reviewing your loan application.

In the illustration below, two individuals with Credit Scores of 810 and 620 respectively apply for a home loan. Depending on the credit policy of the bank, it is more likely that the bank will screen the individual with an 810 Credit Score for further evaluation, while the application with the Credit Score of 620 may not be processed.

How does the CIBIL Score affect me as an individual?

A Credit Score is looked upon by lenders to determine your creditworthiness. So whilst a CIR is like a report card, a Credit Score is like the overall rank you get. It analyzes all the information in a CIR and returns a score value which quantifies your credit and financial health. So by looking at your Credit Score, you can get a sense of your financial standing.

A low Credit Score does not mean that your loan will not be sanctioned. In addition to your Credit Score, your CIR, income and existing loan obligations (debt-burden ratio) also play a key role in the evaluation of your loan application. So if you have a low Credit Score, Bank A may not approve your loan while a Bank B may do so, depending on their respective credit policies. It may do so at a higher interest rate.

How does my CIBIL Score impact loan approval?

Today, the CIBIL Score provides lenders the ability to differentiate between those who have honored their obligations responsibly and those who have defaulted. Individuals who have managed their obligations appropriately build a ‘reputational collateral’ with lenders. In turn, this reputational collateral may allow individuals to negotiate better terms with a lender.

It is always advisable to purchase and review your Credit Score and CIR prior to commencing your loan hunt. It helps you:

• To understand what the lender will review while evaluating your application.
• To identify and rectify any discrepancies in your CIR and thereby prevent unwelcome surprises during the loan evaluation process.

If on purchase of your Credit Score, you do not receive a score value- i.e., a number between 300 and 900- but a “NA” or “NH” instead, this may be because:

• You do not have a credit history: you have not availed any credit facility be it loan or credit cards till date.
• You have a credit history but no credit activity or transactions in the last two years.
• You only have add-on credit cards and have no direct credit exposure.

To purchase your CIBIL Score (and CIR) click here and:

• Fill out the online request form.
• Pay Rs. 550/-.
• Complete the online authentication process by answering a few questions pertaining to your loans and credit cards.
• Post successful authentication, the credit report is emailed to you.