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CIBIL Score, also known as the TransUnion CIBIL score, is a 3-digit number ranging from 300 to 900. This score sums up an individual’s credit behaviour – his credit repayment history, frequency of applying for loans/credit cards, etc. CIBIL score reflects how an individual has dealt with loans or credit cards in the past. The higher your CIBIL score (i.e. close to 900), the better are your chances of getting approved for a new loan or credit card in the future.
Credit Report is a report of your credit history/behavior. The credit report that is generated by CIBIL is known as the CIBIL Report or CIR (Credit Information Report). This document shows your credit history with respect to repayment of all prior loans and credit cards. As the CIBIL report only takes into account the handling of credit instruments, other financial instruments such as your net worth (bank balance, investments, annual salary, business turnover, etc.) plays no role in how high or low your credit score will be.
Eligibility to check CIBIL Score
- Any person residing in India can check his/her CIBIL score subject to the following conditions:
- A valid PAN Card Credit history, that is, you must have previously utilised some credit instrument like a credit card or secured a loan
- The above are mandatory requirements and your CIBIL score and report will not be generated unless both these conditions are met.
CIBIL Score is calculated using the credit history found in your CIBIL Report. It reflects a person’s credit behaviour which includes frequency of applying for loans/credit cards, credit repayment history, mix of secured and unsecured credit, etc. Generally a score closer to 900 is considered to be a good score. Some factors which affect a person’s CIBIL score are given below:
1. Repayment History: Loan repayment history like timely payment of your credit card bills and EMIs (equated monthly installments) affects your CIBIL score. Missing timely payments of your credit card bills or EMIs tends to adversely affects your CIBIL score and thereby your ability to secure new credit in the future.
2. Credit Utilization Ratio: Credit Utilization Ratio is calculated by dividing the amount of credit availed by the available credit limit. A high credit utilization ratio indicates a heavy repayment burden that negatively impacts your CIBIL score. A person with a low credit utilization ratio (30% or lower) has higher credit worthiness for lenders and can avail additional credit with greater ease.
3. Simultaneous Loan/Credit Card Applications: Applications for new credit cards/loans trigger hard enquiries from prospective lenders. These enquiries show up on your CIBIL report which adversely affects your CIBIL score is multiple hard enquiries show up on your report simultaneously.
4. Credit Mix: It is good to have a balanced mix of secured and unsecured loans. Having too much unsecured debt in the form of credit card debt and outstanding personal loans adversely affects your CIBIL score. This is because such credit behaviour is often interpreted as a sign of mismanagement of personal finance. Having a mix of secured loans (like Auto and Home loans) and unsecured loans, can help you maintain a high CIBIL score and increase chances of availing new credit.
5. Increasing Credit Card Limit Frequently: Making frequent requests for increasing the credit limit on your credit cards may increase the number of hard inquiries. This may adversely affect your CIBIL score as it might be perceived as high dependence on credit by potential lenders leading to an increased chance of default in the future.
6. Errors in Credit Report: Errors in CIBIL reports such as an incorrect mention of default in repayments, wrongly assigned loans/credit cards, errors in personal information, etc. may adversely affect your CIBIL score. Additionally, incorrect or delayed reporting by banks may also negatively impact your CIBIL score.
7. Lack of Credit History: Your CIBIL score is calculated on the basis of your credit behaviour, loan repayment history, credit utilization limit, etc. Absence of credit history negatively affects your CIBIL score. It becomes difficult for the lender to determine the risk category the individual falls into in case he/she has never taken a loan or never had a credit card.
8. Inability to fulfill your role as a loan guarantor: Becoming a guarantor for somebody else’s loan makes you liable to pay the loan in case he/she fails to do so. The guarantor’s CIBIL score is impacted in case he/she fails to repay a loan where the primary borrower has already defaulted.