CIBIL score: A complete guide to your credit score

The words ‘CIBIL score’ are often used synonymously with ‘credit score’ and refer to a three-digit score between 300 and 900. CIBIL stands for TransUnion CIBIL Limited, an Indian company that has access to your credit information. This information refers to all financial transactions where you have borrowed or repaid money.

CIBIL has access to the credit information of around 600 million people and has 2,400 members that include lenders of all varieties. Since CIBIL is one of the most trusted credit information companies in India, its score is referred to as your credit score.

Additional Read: Credit rating agencies in India

What is your credit score? Why is it important?

Your credit score may be defined as a rating that reflects your creditworthiness. Think of your credit score as a batting average. If your batting average is above 50, then it means that you have a consistent scoring record of 50, and you are a good player. Similarly, when your credit score is high, it shows that you have borrowed and repaid credit responsibly in the past.

Your credit score is important because it showcases how dependable or risky you are as a borrower. Thus, it directly impacts how eligible you are for a loan, what the lender will offer you as a loan amount, and the rate of interest you will be charged. Your credit score allows lenders to judge the potential risk in lending you money. Your credit score is critical when it comes to unsecured or collateral-free loans and can affect your eligibility for personal loans to a great extent.

While you as an individual have a score, even businesses are given credit scores. For a business, the CIBIL score impacts how creditworthy a lender will find the company. A business credit score could also impact its ability to attract investment.

Additional Read: Save 45% on personal loan EMI

Background of credit score in India

In India, the RBI has licensed four companies to access and manage credit information. CIBIL started its activities in 2001 and has since been one of the most popular credit information companies in the country. Others include Equifax, Experian, and High Mark. Each of these organisations has its unique scoring system.

However, one thing that is common between all scores is that if you have no credit history, your score will be -1. Likewise, if you have a credit history that is less than 6 months old, you will receive a credit rating of 0. Apart from this, these credit information companies also provide an in-depth credit report. Your credit report is the basis on which you are given a credit score.

CIBIL score range

CIBIL scores can range anywhere between 300 and 900, with 900 denoting maximum creditworthiness. A CIBIL score of 750 or above in your credit report is ideal. It will aid in qualifying you for personal loans and credit cards.

However, if your CIBIL score is below 750, you will find it harder to borrow funds from banks and NBFCs. You may be offered a loan at a higher interest rate if your score is close to 750, or your application may be rejected outright if it is much lower. Thus, keeping your CIBIL score above 750 is essential.

How to read your CIBIL report or credit report

The credit report is a detailed document that highlights your entire credit history and record. It includes your personal information, contact information, employment history, credit limit on various credit cards, credit balances, and dates on which you opened various accounts. This credit report is viewed by various parties or organisations.

Some common parties who may view your credit report are as follows:

• Creditors
• Lenders like banks and non-banking financial companies
• Landlords

Given that it is a comprehensive document with multiple sections, it is important for you to know how to read your credit report. This will help you understand your report better, and even check to see if it does justice to your credit history.

Here are the 4 most important sections in your CIBIL report

1. Credit summary:

This section includes details on the kinds of credit accounts that you had in the past or have currently, along with the details regarding the balance. Usually, the account information is divided into segments such as revolving accounts like credit cards, instalment accounts like car loans, real estate accounts like home loans or loans against property, as well as any collection accounts.

2. Account history:

This section consists of all details related to your credit accounts. It will include information like the lender’s name, the type and amount of credit you borrowed, the account number, the date the account was opened, the date you made your most recent payment, the current balance, and a monthly record (usually up to 3 years) of your repayment.

3. Public records:

This is a section that lists big financial slipups, both current and previous. This includes criminal arrests or bankruptcies. Pay special attention to this section and identify the causes of these errors and ensure that you don’t repeat them in the future.

4. Credit inquiries:

Credit inquiries list the occasions where third parties have accessed your credit report within 2 years. Every time a lender checks your credit report, it is counted as an inquiry. Though you can view all credit inquiries, lenders or financial companies may be able to view only a small cross-section. Keep in mind that these inquiries are a result of credit card or loan applications that you have made. So, a potential lender may see multiple credit inquiries on your credit report and surmise that you have made many loan applications in the recent past.

How does CIBIL compute your credit score?

Your final CIBIL score is calculated based on several factors. These are:

• Your repayment history - contributes to 35% of the score
  Your overall repayment history depends on how successfully you have managed to repay all your debt. Since the weightage given to repayment is so high, ensure that you make timely payments towards all your credit.
   
• Your credit balance and utilisation - contributes to 30% of the score
  This section refers to the total credit available to you and how much you have already used. Your credit utilisation ratio is an important part here and is calculated as the outstanding balance on your loans or credit cards. If you have used most of your sanctioned credit, you will be considered a risky borrower. A good ratio is 30%, which means that you have used only 30% of the credit available to you.
   
• Your duration of availing credit - contributes to up to 15% of the score
  This refers to the repayment duration and timely repayment within this duration. If you have borrowed credit over a long repayment tenor and have responsibly and successfully repaid it, your score will be positively affected and vice versa.
   
• Your new credit - contributes to up to 15% of the score
  Every time you inquire about credit, your score is impacted. This may refer to loans you plan to take or credit cards you want to sign up for. If you have made too many credit inquiries, it makes you seem credit-hungry in the eyes of lenders and affects your score negatively.
   
• Your credit mix - contributes to up to 10% of the score
  It is always important to have a healthy mix of credit, which refers to secured and unsecured loans as well as short-term and long-term credit. So, if you have a home loan, a credit card, and a collateral-free personal loan, you will be deemed to have a healthy credit mix.

What is the difference between CIBIL, Equifax, Experian, and High Mark?

These are four credit information companies that function under the RBI’s approval. Their similarities and differences are listed below.

1. CIBIL

• It is the oldest and most popular in India today. Also, it offers market insights and portfolio reviews for businesses apart from CIBIL scores and reports for individuals.
• Its scoring system ranges from 300 to 900, with 900 being the highest and 300 being the minimum CIBIL score.
• It offers businesses a company credit report and a CIBIL rank.

2. Equifax

• It was granted its license in 2010.
• Its scoring system is on a scale of 1 to 999, with 1 being the lowest and 999 being the highest.
• It also offers additional facilities like credit risk and fraud management, portfolio management, and industry diagnostics.

3. Experian

• It received its license for operation in India in 2010, but has been an international company since 2006.
• The Experian score ranges from 300 to 900, with 300 being the lowest and 900 being the highest.
• It offers several services for consumers and organisations, like customer acquisition, collection and money recovery, customer management, data analytics, customer targeting, and engagement.

4. High Mark

• It has been in operation since 2007; however, it received a license as a credit information company in 2010.
• Its score ranges from 300 to 850. While a score of 720 and above is considered good, 640 and below is deemed to be poor.
• It offers a variety of services for customers and such as portfolio management, alerts, and geo-analytics consulting.

You can choose from any of these companies to calculate your credit score, and so can lenders and other parties.

How to check your CIBIL score

Check your CIBIL score for free with Bajaj FinservIf you are wondering where to check your CIBIL score, you can do it easily by visiting the credit information company’s website. Usually, you will need to pay a small fee to check your score. To get unlimited access to your credit score and report you can pay Rs.550 for 1 month or Rs.1,200 for a year at the CIBIL MyScore page. You can also check your CIBIL Score for free on a one-time basis here.

Check your CIBIL score for free with Bajaj Finserv

Financial companies and lenders also give you an offer to check your credit score. For instance, Bajaj Finserv lets you check your CIBIL score for free at no extra cost. All you have to do is enter your details and access your credit score for free.

Why do lenders check your CIBIL score before approving your loan?

Since CIBIL score measures your overall creditworthiness, a lender is certain to check your score when reviewing your loan application for a variety of reasons. They are:

• To check your credit history and past record
• To see whether you are capable of repaying debts 
• To review your credit balance and understand the risk level of your profile
• To judge whether you qualify for the loan
• To decide on the loan amount to offer you and interest rate applicable

What are the factors that affect your CIBIL score?

Given the significance of your CIBIL score, it is important to ensure that it's always towards the higher side. To do this, it is vital to be aware of the factors that affect your credit score and control them accordingly. Here are the factors that affect your CIBIL score:

• Your income
• Your existing debts
• Your past credit repayments
• Any defaults, delays, or lapses in previous credit repayment
• Rejections for loans that you have applied for
  

How does outstanding debt affect your credit score?

The amount of outstanding debt impacts your credit score. Lenders normally check this in the form of the credit utilisation ratio. This refers to the amount of money you are using out of the total credit available to you. The higher the ratio, the lower your credit score. However, this doesn’t mean debt is bad for you. In fact, you will be able to build your credit score only when you take on debt. The key is to pay it off in a timely fashion and not go over your credit card’s or bank account’s limit.

Two reasons why outstanding debt spells bad news for your credit score

1. It maximises your credit utilisation ratio:

• A good credit utilisation ratio is 30% or lower
• A high ratio means you are using too much credit, which can reduce your credit score

2. It makes repayment of future loans difficult:

• If you have outstanding debts, it means that you could already be paying high EMIs
• Borrowing more loans in the future with outstanding debts can create a major repayment burden and even cause bankruptcy
  

What is a good credit score to avail of a personal loan?

The minimum CIBIL score for a personal loan is 700 or 750, depending on the lender. Having this CIBIL score for a personal loan can boost your chances getting your personal loan application approved.

What is a good credit score to avail of a business loan?

An ideal CIBIL score for availing a business loan is 700 and above if you are opting for a collateral-free business loan

What is a good credit score to avail of a home loan?

To avail a home loan, you need to ensure that you have a CIBIL score at least above 650. Since a home loan is a secured loan, lenders have the option of seizing your home if you are unable to repay the loan. This is why a slightly lower credit score is allowed. However, it is in your best interest to maintain a good credit score so you can get a larger loan amount at nominal interest

Additional Read: What is a good CIBIL score for getting a loan?

How to maintain a good CIBIL score?

You can maintain a good CIBIL score by following these simple steps:

• Pay your EMIs on time to create a proper track record
• Avoid having a credit card that you don’t use; cancel dormant credit cards
• Manage your credit cards carefully by setting payment reminders or limit your use to one credit card
• Avoid re-applying for loans or credit cards that you did not get approved for in quick succession
• Don’t make too many loan applications in a short span of time
• Choose lengthy loan tenors with care and try to make part-prepayments when you can
  

How to get a loan despite a poor credit score

• Borrow from non-banks:
  While non-banking financial companies, like Bajaj Finserv, still need you to have a decent credit score, they tend to have relatively simpler eligibility criteria, which may help you raise funds fast and without too much effort.

• Apply with a guarantor or co-signer to your loan account:
  Adding a co-borrower to your loan application helps distribute the responsibility of repayment between you and the co-borrower. When your co-borrower has a good score, you will be able to borrow a larger loan amount and boost your chances of approval too.

• Try to find a secured loan:
  When a loan is unsecured, the lender is more stringent with the eligibility criteria by carefully filtering and selecting the most dependable or reliable borrowers. However, if you have collateral to offer, the significance of having a good credit score diminishes.

• Prove your financial backing:
  If your credit score is poor, your lender will have limited faith in your ability to repay a new loan. So, you can submit evidence about your financial ability to repay the loan. You could show documents like your business’ profit and loss statement, bank balance, bank account statements, FD statements, rental income, etc., to prove to the lender that you have funds to repay the loan.
   
• Take measures to improve your score:
  There is no better tactic than simply boosting your credit score. You can do this by various methods, and the change would reflect in your score after a period of six months or a year.
   
• Go for informal means of borrowing:
  When you need money and have a bad credit score, try to raise credit from other sources like family or friends. You can then conveniently repay these loans as and when you have the funds.

Additional Read: Get personal loan on bad CIBIL score

Smart tips to improve your CIBIL score

• Don’t be a co-signer for a loan unless you don’t need to borrow around the same time
• Avoid acquiring too many debts over a short period of time
• Ensure you repay all your EMIs and credit card bills on time
• Use debt consolidation loans as and when necessary so that your dues aren’t handed over to a debt collection agency
• Be cautious about borrowing loans without a proper repayment plan in place
• Always negotiate your rate of interest with lenders to keep your costs down
• Don’t borrow the entire amount you receive a sanction for
• Choose a shorter loan tenor to repay your loan fast and at a lower interest payment
• Talk to a CA or financial planner to get help on saving taxes and managing your money more efficiently
• If you don’t have any credit history, borrow a small personal loan and repay it on time to build a credit score

Now that you know everything about your CIBIL credit score, be smart about your financial practices. Try to keep your CIBIL score high and you’ll be able to access funds on your terms.

Additional Read: What is CIBIL and what does it have to do with your credit score?

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