Tina is planning to get married next year. Since her father has retired from services, Tina wants to bear the cost of the wedding. She has been saving up for the wedding. But she feels that taking a personal loan can also boost her liquidity. As she was checking out the various personal loan offerings, she saw that a CIBIL Score is very important for a loan application to be processed. So let us see what is a CIBIL score and how can you check CIBIL Score online for free.
What is CIBIL Score?
Tina learned that TransUnion Credit Information Bureau (India) Limited known as CIBIL is the first credit information company in India. CIBIL is an integral part of the financial system of the country. The key responsibility of CIBIL is to collect and maintain monthly credit information reports (CIR) from banks and financial institutions. CIRs include information regarding a borrower’s credit history – in other words, how what has been the individual’s payment track record. Borrowers can be either individuals or a corporate.
On the basis of the information available in the CIR, CIBIL generates a three-digit score called a Credit Score, popularly known as CIBIL Score. One can say that CIBIL Score is a summary of the credit history of an individual. What the score does is that it indicates the probability of default by an individual borrower on the basis his or her past payment track record. The value of CIBIL Score ranges from 300 to 900. Let us take a look at the different ranges of CIBIL Score:
• A/NH : Credit history is essential for calculating the CIBIL Score. In the case of no credit history, the report will mention that your credit score is NA/NH.
• 300 -550 : This is a poor credit score which indicates that you have defaulted on previous payments.
• 550-650 : This is an average score.
• 650-750 : This will be viewed as a good score. While your loan application may be approved, you may find it difficult to ask for add on benefits.
• 750-900 : This is the ideal score for a lender. This indicates that the borrower is extremely creditworthy and has not defaulted on past payments.
Why is a CIBIL Score important?
In case you want to avail a loan like Tina, any bank or a financial institution you approach needs to make an assessment about your credit-worthiness. What are the chances that you will default on the loan? In order to objectively assess this, lenders use the CIBIL Score as a guide.
A CIBIL score of 750 or above increases the chances of the loan application being approved. The lenders are even willing to provide a few add-ons such as waiver of the processing fee, lower interest rates, a reduced amount of EMI and disburse the loan on a fast track basis. But a low CIBIL Score can be bad news – your loan application can get rejected at the initial stages.
Higher the CIBIL Score, more confident is the lender that the borrower is credit-worthy. One must understand that lending a huge amount of debt is an exposure for the lender. So the lender will want to make sure that the chances of the borrower defaulting on the loan are not high.
The method followed by CIBIL to arrive at the credit score is objective. To achieve a high score, the following components are very crucial:
• Utilization of credit by the individual
• Any defaults/delays by the individual in servicing existing debt (whether EMI payments or credit card payments).
• The various trade attributes of an individual such as what type of credit is a consumer using, does the consumer have a good balance of credit and how old are the lines of credit.
The maximum weightage is given to the past performance of the borrower in repaying existing debt. As noted earlier, CIBIL score is an assessment to find out whether the borrower is creditworthy. So any instances of past default in loan repayments automatically result in a lower score.
How to check CIBIL Score for free?
As per the directive of the Reserve Bank of India, CIBIL provides free CIR along with the CIBIL score once in a year. For an estimated CIBIL score, Tina can access any of the online finance market places. However, scores obtained from such online marketplaces are a mere estimation. There could be differences between the score computed by CIBIL and what is available through such websites. There are also concerns of data privacy as these websites may end up sharing the information provided by the individual to access the score.