What is CIBIL, Credit Score and Why You Should Care?
Banking is a risky business and it is very important for the lenders to make a fact-based informed decision while extending credit to any borrower.
In an effort to do so, CIBIL (Credit Information Bureau of India Limited) was floated in India by a group of banks and financial institutions.
CIBIL is a credit bureau, that is, a repository of credit information of all customers of its members, which comprises banks and financial institutions.
CIBIL’s members include all leading banks, financial institutions, non-banking financial companies, housing finance companies, state financial corporations and credit card companies.
CIBIL collates credit information contributed by its members and disseminates it to lenders, helping them in their credit-decision-making and lending process. CIBIL houses only credit information, that is, the information about the loans and credit cards. It does not collect any information about the customers’ savings accounts or other investment accounts. Members share this credit information of their customers with CIBIL month on month so that CIBIL’s database is updated.
CIBIL uses the information to create credit information reports, also known as CIRs, and your credit score. These reports contain; basic borrower information (such as names, DOB’s and addresses), past payment history, overdue amounts, records of all the credit facilities availed by the borrower, suit-filed status and number of inquiries made on that borrower, by different Members. These credit information reports are used by credit underwriters to make effective credit decisions.
What does this mean for you? Well, one thing is that unlike before, all your credit-related actions are now getting reported to the CIBIL, and put together make up your credit score. So, if you take a credit card, it is reported to CIBIL. Similarly if you have a personal loan and have defaulted on your payments, it all goes reflects in your Credit Information Report. This way CIBIL maintains a complete history of your credit transactions, and is able to arrive at a credit score for you. Depending on how well or poorly you have managed your credit, your credit history as CIBIL will be good or bad.
In the future if you want to take a loan from another bank, that bank will get your CIR from CIBIL and use it to extend or not extend the loan to you. Almost all banks look for CIBIL report before extending credit. It may also affect the interest rate that you have to pay on your loan. A good score will obviously help you get a lower interest rate.
It is extremely important for you to maintain a good credit report. As long as you are repaying your credit cards, and other loan obligations on time, you will generally have a good credit report. Some of the factors that affect your credit report are: types of credit used, how often you search for credit, length of credit history, credit utilization, and your payment history.
If you are facing difficulty in obtaining a loan, it will be helpful to obtain your credit report by paying a small fee.