TransUnion CIBIL Limited is India’s first Credit Information Company, also commonly referred as a Credit Bureau. They collect and maintain records of individuals’ payments pertaining to loans. These records are submitted to CIBIL by banks and other lenders monthly. Using this information, a Credit Information Report (CIR) and Credit Score is developed, enabling lenders to evaluate and approve loan applications. A Credit Bureau is licensed by the Reserve Bank of India and governed by the Credit Information Companies (Regulation) Act of 2005.
Note that there are 3 other Credit Information Companies in India approved by Reserve Bank of India. They are:
- Experian Credit Information Company of India
- CRIF High Mark Credit Information Services Pvt. Ltd.
- Equifax India Ltd.
The information mentioned subsequently in the article applies for all these credit information companies.
Why is CIBIL score important?
The CIBIL score is vital for anyone in today’s world as it has a deep impact on one’s future. The key impact areas are:
Credit Card Approval:
Any delays in prior loans reported to CIBIL is checked for before a credit card is provided to an individual. If there are delays done, then for the existing cards, the credit limit can also be reduced.
Employment:
The Credit Score has become important in background checks for most of the domestic and international companies. Lower credit score can mean that you do not get shortlisted to the subsequent rounds. Even if this is done, based on the background check, your employment may be terminated.
Loan Approval:
All banks refer to the CIBIL score before approving a loan for an individual. These include unsecured loans like personal loans and education loans as well as secured loans like home loans and gold loans. If the score is bad or a delinquency has been reported in the history, then the individual may not be eligible for any loan.
Interest Rates:
Even if the banks give a loan because of delays, they will be at high interest rates as the perceived risk of an individual with prior delays is looked at in poor light.
Postpaid Telephone Connections:
Telecom operators check the CIBIL score before allowing a customer to get a postpaid connection. If there are delays in payments before, then this will force you to go for prepaid connections only.
House Rentals:
Though a norm outside India, landlords have started asking for CIBIL score before letting their house as they do not want delays in their payments. Good CIBIL score indicates good payment behaviour and financial stability which is a pre-requisite for the landlords.
Insurance Premiums:
Credit score is also an important criterion to charge the premium for insurances. Poor credit scores mean higher premiums as the potential risk for the subsequent premiums getting paid for people with poor credit history is higher.
The penalty for one bad payment is recurring suffering throughout one’s personal, professional and financial life. Hence, it is very important to keep one’s CIBIL score good i.e. above 750.
What factors affect my CIBIL score?
The CIBIL score uses multiple parameters to come up with the score. Some of the key parameters are:
- Delayed loan payments: If there are delays in payments of loans reported, then the CIBIL score can be affected adversely.
- Too many loan enquiries: If there are many loan enquiries made, then this can have a direct impact on your CIBIL score adversely.
- Availing too many loans: If your principal outstanding at any point is very high, then this can affect your CIBIL score adversely. In addition, availing too many loans at a time can have a detrimental impact on your CIBIL score.
How to improve my CIBIL score?
The key ways by which you can improve the CIBIL score are:
- Pay dues on time: The more on time payments are reported to CIBIL, the better it is for your score
- Keep your outstanding liabilities appropriate:Do not over-lever your credit line i.e. do not use too much credit.
- Review your credit score throughout the year: Monitor your CIBIL scores once every 6 months to ensure that your score is not suffering.
How can I view my CIBIL score?
Reserve Bank of India has mandated the Credit Information Companies to provide one free credit score report per year free for the owner of the report. You can get details on how to access your free credit scores in these links:
