Buyer Guide: When to Buy? Role of CIBIL

In order to understand a CIBIL or CIBIL TransUnion score, it is essential to know what CIBIL is. Credit Information Bureau India Limited (CIBIL) is the first credit information company founded in India. It records and maintains credit details of individuals. These include details such as payment records of loans and credit card bills received from member banks and financial institutions. This information is then used to create Credit Information Records (CIR) and credit scores. This is shared with all the banks and financial institutions for evaluation and sanctioning of different types of loans.

 CIBIL score and its calculation

In the last five years or so, the Indian financial market has become quite stringent. Therefore, it is essential to maintain a healthy CIBIL credit score. Your CIBIL credit score is generated basis the CIR created and is used for evaluating your eligibility for any kind of borrowing. A CIR is an individual's credit payment history across loan types and credit institutions over a period of time.

 

A CIBIL credit score can be explained as a 3 digit numeric outline of your credit history. It is calculated on the basis of your complete borrowing details such as repayment record, repayment pattern, the number and type of loan accounts and outstanding debts and default instances (if any). It ranges between 300 and 900 points. A healthy or a high credit score is important to get loans effortlessly. The higher the points i.e. close to 900, higher are the chances of getting loans from a lender (bank of other financial institutions in India). A low score (close to 300) indicates defaults in the repayment pattern or other discrepancies pertaining to borrowings in the past.

 However, each bank or financial institution has its own benchmark for home loan eligibility and approvals. Your CIBIL score is the first thing banks refer to when you apply for a loan or a credit card. It is one of the most important criteria to decide your eligibility for a loan or a credit card

 How to improve your CIBIL score?

A low CIBIL credit score can not only weaken your chances of getting credit at a modest interest rate but can also make it extremely difficult and cumbersome to get loans sanctioned. However, if you follow the simple tips mentioned below, you might be able to maintain and improve your credit score immensely.

 Make payments on time: You must be very punctual about paying off your credit card bills and other utility bills in order to maintain and further improve your CIBIL score. If you have any outstanding bills, ensure that they are fully paid off, in time. Use methods such as online payments or automatic deduction from your account to avoid missing on any payments.

 Do not take too much credit: It is a common notion that having multiple credit cards is an easy way to get credit. However, what home buyers fail to realize is that owning multiple credit cards sends out a signal that you are desperate for credit and this might reduce your chances of getting credit or a home loan when you actually need it.

 Use your credit card wisely: It is essential to use your credit cards wisely. Do not exceed your card limit. In fact, try and use only up to 75 per cent of the limit. This indicates calculated spending, which is a positive point from a lender’s perspective.

 Avoid applying for too many loans: When you apply or enquire about loans with banks, an enquiry from the bank is sent to CIBIL. The higher the number of such enquires with CIBIL, the more pressure it puts on your credit score.

 Keep a check on your credit report: You must get a copy of your credit report periodically to ensure that all details are correct. In case you find any mistakes that might hamper your credit score, you must immediately report it to CIBIL. You can get your credit report on the CIBIL website.

Have a right mix of secured and un-secured loans: Secured loans such as home loans, which are taken for creating additional assets, have a positive impact on your CIBIL credit score. On the other hand, un-secured loans such as car and personal loans may adversely impact your CIBIL score.