What is CIBIL score and how does it impact a borrower?

Banks rely on a variety of risk assessment tools to gauge the creditworthiness of a borrower. One of the most popular instruments to do so is credit score assessment, often referred to as the CIBIL score.

However, CIBIL is not the same as a credit score. CIBIL is the leading company in India, providing credit rating services to banks and financial institutions. Its name has become synonymous with credit score because the CIBIL score is the most commonly used credit score by Indian companies.

 

What is CIBIL score?

CIBIL score is the rating assigned to people with a banking history by credit reporting companies in India. This data is shared with financial institutions to help them understand the creditworthiness of a borrower. Banks use this information to understand the probability of defaults and a borrower’s ability to repay his debt.

See also: How to improve your CIBIL score?

 

Credit reporting companies in India

TransUnion CIBIL, Equifax, Experian and CRIF Highmark are the four main credit reporting bureaus in India that generate, maintain and calculate credit scores. Aside from the four credit bureaus, other platforms where you can get a free credit report include HDFC Bank, Paisabazaar, Bankbazaar, Creditmantri, Wishfin, Tata Capital, Creditbazaars, Mymoneykarma and Bajaj Finserv.

 

What factors affect your CIBIL score?

Credit information companies use the following data to arrive at your credit score:

1. Closed accounts
2. Settled accounts
3. Written-off accounts
4. Days past due (DPDs)
5. Enquiry
6. High credit
7. Past and current residential and office addresses
8. Opening and closing dates of loans
9. Ownership status (single/joint/guarantor)
10. Liability type (loan/credit card)

 

What is the CIBIL score range?

Based on your creditworthiness, credit reporting companies may assign you one of the following scores:

CIBIL score of 700+: A score above 700 is considered a no-risk zone for the financial institution. This means that the lender will be willing to offer you the loan at their lowest interest rates. Note that 79% of loans are sanctioned to borrowers with a score higher than 750.

CIBIL score between 600 and 700: Lenders will be willing to offer loans to a person with a score in this range, which is a less risky zone. You may, however, have to pay a higher interest than those with a better score.

CIBIL score of 300-600: A person with this credit score is considered to be in a risky zone. Banks shy away from funding people in this category.

CIBIL score 1-5: This credit score is assigned to people with less than six months of credit history.

-1 credit score: This credit score is assigned to people with no credit history. It is associated with first-time borrowers with no loan or credit in their names.

Read also: What is the importance of a credit score or CIBIL score, in getting a home loan?

 

CIBIL score check free

Step 1: Go to the CIBIL website. Click on ‘Get Your Free CIBIL Score’ on the home page.

 

 

Step 2: Create an account with all the necessary details. Click on the ‘Accept and Continue’ option.

 

 

Step 3: On filling out the form and accepting changes, an OPT will be sent to your registered email ID. Key in the OTP and hit ‘Continue’.

 

 

Step 4: You will now be asked if CIBIL could pair your device. Say, yes or no, as applicable.

 

 

Step 5: Your enrolment is now complete and you can visit the dashboard.

 

 

Step 6: The page will now show your CIBIL score along with your other details.

 

 

Fee for CIBIL score check

For a detailed CIBIL score check, you will have to pay the following fee:

Basic credit report with credit score: Rs 550 (one report in a year)

Standard credit report: Rs 800 (two reports in a year)

Premium credit report: Rs 1,200 (four reports in a year)

 

Does CIBIL score impact a homebuyer?

All lenders in India rely on the creditworthiness of the applicant to reduce loan defaults. Even though home loans are secure (banks can sell the property and recover their money in case of payment default), they still assign great importance to your credit score. Banks offer the cheapest home loans to customers with the best credit score. A home loan is comparatively costlier for borrowers with lower credit scores.

Considering lenders look for four core areas while assessing borrowers’ credit history – customer identification, credit inquiries, account history and public records, such as bankruptcy or tax liens – a complete absence of credit history is not viewed positively and banks might not offer their best interest rates.

According to experts, a good credit score can help you get a loan at an attractive rate of interest. “This can lower your interest burden by lakhs of rupees, during a loan tenure of 15-20 years,” says Sujit Kumar, a Delhi-NCR-based lawyer.

 

FAQs

What is CIBIL?

CIBIL, formally called TransUnion CIBIL, is a credit information company that maintains credit records of over 1000 million individuals and businesses. It has over 5,000 members, including leading banks, financial institutions, non-banking financial companies and housing finance companies.

What is the CIBIL score full form?

CIBIL stands for Credit Information Bureau (India) Limited.

Can you know your CIBIL score for free?

Yes. From January 1, 2017, credit information bureaus in India were mandated to provide one free credit report in a financial year.

Do I have to pay for the CIBIL report?

While one report per financial year is free, credit bureaus charge a standard fee to provide the credit check report, if you seek a second report in a year.

How much time does it take to get your free credit report?

Once you provide all the information, the credit bureau/the bank/the fintech company will send you the free credit report within hours of your inquiry.

How is the CIBIL score calculated?

Credit bureaus calculate credit score ratings, based on four factors. These include: (1) Repayment history (2) Existing loan and credit utilisation (3) Type of loan and tenure (4) Number of credit inquiries While the first two parameters are given the highest weightage (typically 30-35%), different credit bureaus may give different weightage to each parameter.

Do all credit reporting companies use the same model to arrive at the CIBIl score?

There are generic as well as specific/custom credit scores, which are developed to foresee risk for particular types of lending or customers.

What is a good CIBIL score?

Credit bureaus in India assign a valid CIBIL score, ranging between 300 and 900. A score above 700 is considered a good CIBIL score.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at [email protected]