Credit Score and Loan Basics

1. What is TransUnion CIBIL? What does it do?

TransUnion CIBIL Limited is India’s first Credit Information Company, also commonly referred as a Credit Bureau. We collect and maintain records of individuals’ and commercial entities’ payments pertaining to loans and credit cards. These records are submitted to us by banks and other lenders on a monthly basis; using this information a CIBIL Score and Report for individuals is developed, which enables lenders to evaluate and approve loan applications.

A Credit Bureau is licensed by the RBI and governed by the Credit Information Companies (Regulation) Act of 2005.

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2. Why is my CIBIL Score important for getting my loan sanctioned?

The CIBIL Score plays a critical role in the loan application process. After an applicant fills out the application form and hands it over to the lender, the lender first checks the CIBIL Score and Report of the applicant. If the CIBIL Score is low, the lender may not even consider the application further and reject it at that point. If the CIBIL Score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy. The CIBIL Score works as a first impression for the lender, the higher the score, the better are your chances of the loan being reviewed and approved. The decision to lend is solely dependent on the lender and CIBIL does not in any manner decide if the loan/credit card should be sanctioned or not.

 

3. What is a CIBIL Score and what factors affect my CIBIL Score?

CIBIL Score is a 3 digit numeric summary of your credit history, derived by using details found in the ‘Accounts’ and ‘Enquiries’ sections on your CIBIL Report and ranges from 300 to 900. The closer your score is to 900, the higher are the chances of your loan application getting approved.

4 major factors

4. How can I improve my CIBIL Score?

You can improve your CIBIL Score by maintaining a good credit history, which is essential for loan approvals by lenders. Follow these 6 steps which will help you better your score:

 

  • Always pay your dues on time: Late payments are viewed negatively by lenders
  • Keep your balances low: Always be prudent to not use too much credit, control your utilization.
  • Maintain a healthy mix of credit: It is better to have a healthy mix of secured (such as home loan, auto loan) and unsecured loans (such as personal loan, credit cards). Too many unsecured loans may be viewed negatively.
  • Apply for new credit in moderation: You don’t want to reflect that you are continuously seeking excessive credit; apply for new credit cautiously.
  • Monitor your co-signed, guaranteed and joint accounts monthly: In co-signed, guaranteed or jointly held accounts, you are held equally liable for missed payments. Your joint holder’s (or the guaranteed individual) negligence could affect your ability to access credit when you need it.
  • Review your credit history frequently throughout the year: Monitor your CIBIL Score and Report regularly to avoid unpleasant surprises in the form of a rejected loan application.

5. Can CIBIL delete or change my records? 

CIBIL cannot delete or change records reflecting on your CIR on its own; we simply collect records of individuals provided to us by our members (Banks and financial institutions). There are no ‘good’ and ‘bad’ credit or defaulters lists either.


6. What does it mean when my Score is "NA" or "NH"?

A Score of “NA” or “NH” is not a bad thing at all. These mean one of the below:

  • You do not have a credit history or you do not have enough of a credit history to be scored, i.e. you are new to the credit system
  • You do not have any credit activity in the last couple of years
  • You have all add-on credit cards and have no credit exposure

It is important to note that while these Scores are not viewed negatively by a lender, some lenders’ credit policy prevents them from providing loans to an applicant with Scores of “NA” or “NH” (applicants with no credit track record). Hence, you may have better chances applying for a loan elsewhere.


7. What is CIBIL Score 2.0?

The CIBIL Score 2.0 is a new, updated version of CIBIL Score which has been designed keeping in mind the current trends and changes in the consumer profiles & credit data. Banks are gradually switching to the new version and you may find a difference in the new version when compared to the earlier version (i.e., the score 2.0 may be lower than the earlier version). Please note, the score displayed on the dashboard is the earlier version. However, the difference in the Credit Score does not impact the credit decisioning during the Loan approval process as both the versions of the score may have a different score eligibility cut off while processing the loan application.

For example, if your bank earlier used to sanction loans / credit cards to individuals with a credit score of 800 and above it may now lower its cut-off, if it has switched to the new version.

The CIBIL Score 2.0 also introduces a risk index score range for those individuals who have a credit history of less than 6 months. These individuals were categorized under the category of “No History – NH” in the earlier version. The score range is from 1 – 5, with 1 signifying “high risk” and 5 signifying “low risk”.

risk graph

 

Cibil Score 2.0 summary and interpretation:

Score & Index Interpretation (i.e., for whom does this score reflect)
NA or NH •    Individual has no credit history & it has not been reported to us.
•    Individual has no credit history but has only been enquired upon.
•    Individual has credit history but none that is reported in the 24 months prior to enquiry.
•    Individual has a credit history but it has not been reported to us in the last 24 months.
1-5 •    Individual has a credit history which is less than 6 months, hence a risk Index is returned
•    Higher to index, lower the risk
300-900 •    An individual with a credit history of more than 6 months (in the last 24 months)
•    Higher the score, lower the risk