A Mirror to Your Financial Health
If you have ever taken a loan, applied for a credit card, or had any credit-related association with a bank or a non-banking finance company, then you must have heard of CIBIL. And your lender’s representative must have explained to you how your CIBIL score would determine how much loan you were likely to get—or if you could get it at all. So, what is this CIBIL and how does it work in assessing the eligibility of just about anybody who applies for loan? In this chapter, Team Consumer Voice has made an attempt to identify and address all queries that the common consumer may have about the CIBIL factor.
Many of you would have become curious about the term ‘wilful defaulter’ when in early September United Bank of India (UBI) declared grounded Kingfisher Airlines and its chairman Vijay Mallya wilful defaulters for non-payment of dues. Many news stories and articles appeared to explain who a ‘wilful defaulter’ was and how financial institutions identified them. But for this high-profile case, the term would have remained a jargon limited to the industry. While the box here explains who gets the ‘wilful defaulter’ tag, the following text will tell us how CIBIL functions and how one can work towards staying away from the infamous tag.
Here’s Your Every EMI Detail
Credit Information Bureau (India) Limited (CIBIL) is a credit ‘information’ company that collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders on a monthly basis. This information is then used to create credit information reports (CIR) and credit scores that are provided to lenders in order to evaluate and approve loan applications. Yes, if you have ever borrowed from an organized bank, then CIBIL has details of every EMI you paid for the same. CIBIL membership is available to the following institutions: Credit institutions (commercial banks, RRBs, cooperative banks, NBFCs, public financial institutions, housing finance institutions, etc.) Companies engaged in the business of credit cards and other similar cards, and companies dealing with distribution of credit in any other manner Insurance companies Companies providing cellular or telephone services Credit rating agencies Asset reconstruction companies
CIBIL Credit Score and CIR
CIBIL score and credit information report (CIR) play a significant role in the loan approval process. The credit score helps loan providers to quickly determine who they should evaluate further to provide credit. The CIBIL score ranges from 300 to 900. CIBIL data indicates that about 80 per cent of loan providers prefer credit scores that are greater than 750.
Once the loan provider has decided which set of loan applicants to evaluate, they consult the CIR in order to determine the applicants’ eligibility. Eligibility basically means the applicants’ ability to take additional debt and repay the same. In order to obtain a good CIBIL score, you need to maintain a good credit history, the details of which will show up
in your CIBIL credit information report. The CIBIL score can, therefore, be compared to a grade or a rank based on how you have been servicing your credit.
A CIR does not contain details of your savings, investments or fixed deposits. So do not worry. Your investments are not reflected in the public domain for the purpose of obtaining CIR.
Is It Relevant to You?
The CIBIL credit score and CIR help loan providers identify consumers who can pay back their loans. For consumers, these help in getting loan approvals quickly and economically. Earlier there were tedious verification processes that not only took time but also increased application expenses for consumers.
It is necessary for one to have a good CIBIL score in order to qualify for a loan with an attractive rate of interest. You can do that by clearing all your bills and loan payments well within the dates stipulated. A good repayment history can have a direct bearing on your loan eligibility.
The length of time for which you have been using credit also has an important bearing on your credit score. Therefore, if you have been servicing debt for a longer period of time and handling it responsibly (that is, by making timely repayments), it is going to have a positive impact on your CIBIL score.
How Do I Get My Credit Score/CIR?
Since April 2011, anyone can access and obtain their CIBIL credit score and CIR. For this, you will have to visit the website www.cibil.com and fill up the ‘online credit score request form’. You will have to pay a fee of Rs 470 through Internet/mobile banking or by credit/debit card for one individual/firm seeking the score/report. The CIBIL score and CIR can also be emailed to you separately, once your bio-profile gets authenticated.
What You Must Do for a Good Score
a) Debt repayment – always pay your dues on time
You need to clear all your bills and loan repayments well within the dates stipulated in order to maintain a good repayment history. Even a single default has a negative impact on your score. b) Credit card payments – keep your balances low
What you owe your lenders is referred to as credit utilization. First is the total of your credit card limits sanctioned to you and second is the percentage of the sanction money you are utilizing. Your credit utilization ratio is calculated as balance outstanding on all your credit cards as a percentage of total credit limits on all your credit cards. If your credit utilization ratio is upward, your profile is considered to be ‘risky’. c) Apply for credit in moderation
Every time you apply for a new credit, the banks and other financial institutions run an enquiry on your CIBIL report to check your credit history to find out about your financial health and repayment capability. If there have been too many such enquiries on your CIBIL report, it could have a negative bearing on your credit score.
d) Maintain a healthy mix of credit
If you have been avoiding credit and have a single type of credit, you cannot have a good credit score, especially if you have only unsecured loans like credit cards or a personal loan. So, one must have a mixed bag of loans, both secured (availed by offering security) and unsecured (clean credit). e) Monitor your co-signed, guaranteed and joint accounts monthly
You are held equally liable for missed payments of the main borrower where you have stood as a guarantor by way of personal surety. Your joint holder’s negligence could affect your ability to access credit when you need it.
f) Rejection of loan by other banks
Some people tend to apply to multiple banks at the same time. However, remember that if your loan is rejected from one bank, then it can have an impact on your credit score and hence lead to the loan being rejected by other banks too. It is better to wait for the reply from one bank before applying to another, so that you know why your loan is rejected and get the issue rectified.
g) Lender’s credit policy
Your loan could have been rejected because your CIBIL score and CIR did not meet the lender’s internal credit policy criteria. So try understanding the criteria before applying. h) Review you credit history frequently throughout the year
You need to purchase your CIR from time to time to avoid unpleasant surprises in the form of a rejected loan application, especially when you are in dire need of a loan.
Quick Tips: Faults You May Avoid
Avoid paying your bills through cheque just a day before the last date, as it does not mean that your payment is done. The company’s courier man will collect it and send it for consolidation, entry, etc. This can take some time and result in delayed payment. Either drop it a few days earlier or pay online. If the bills are not fixed each month, put a recurring reminder in your mobile phone a few days before the last date and then make the payment. If you have a lot of credit cards, better increase the limit of a few of them and close the other credit cards. This way, you will have the same credit limit in total with a reduced number of cards. It is better to have 2 cards with Rs 50,000 limit each, than 4 credit cards with Rs 25,000 limit each. One of the easiest ways to improve your CIBIL score is to not utilize the card’s limit fully. If your credit card limit is Rs 50,000 a month and every month you use Rs 45,000 or Rs 48,000, it will affect your score. So stop using the cards on reaching 70 per cent of your credit limit. In fact, just about 30 per cent of card utilization is seen as ‘positive’ and you have to make sure it is the case with all the credit cards you have. If you are reaching your limit, move to cash/ debit card for a part of your expenses and reduce your credit card limit. In case you cannot reduce your expenses on credit card, better contact your credit card customer care or write to them stating that you want the credit card limit to be increased. Most of the companies will do it. Just tell that you have a few things lined up in the next two to three months and you want the limit to be increased. On the other hand, think well before closing a credit card that you are not using. Your overall credit limit will come down if you close a credit card. So make sure you think twice before closing a credit card from a credit utilization ratio point of view.
Cut your debt when it shows a sign of going out of control. One common ground rule to be followed is that the overall outstanding credit at any point should not be more than one month of your take-home salary. There is no solution for an out-of-control credit card debt other than paying it in full. A lot of people just apply for loans even if they don’t really need it. Keep this thing in mind and deliberately make sure that there is a few months’ gap between two loan applications (at least six months’ gap). If you do not have a credit card, there is a good reason why you should get one now and do your payments with credit card and pay in full every month, so that your payment history is built.
Loan without CIBIL or CIR
RBI has not yet made it mandatory for banks/FIs to become members of CIBIL. So, if you are averse to get your CIBIL score or CIR, you can still apply for a loan to the bank of your choice and wait for their internal loan process to be completed. The bank may, at its discretion, take a call on your loan application and decide on its merits, as would happen to a CIBIL- Don’t leave your documents here and there if you don’t agree to become a guarantor. Many people misuse the carelessly left documents by forging your signature and misusing photocopy of your PAN card or driving license to show you as a guarantor, which you never offered. Also, avoid becoming a guarantor for somebody’s loan unless you can fully trust that person. Make sure your total unsecured debt looks small in your overall total debt. Suppose you have Rs 80,000 of unsecured debt out of a total debt of Rs 100,000 – then your unsecured debt ratio is 80 per cent. If you avail Rs 500,000 of secured loan, then your unsecured debt comes down in percentage, which makes things look better. Or, make sure you prepay a part of your unsecured debt and bring down the percentage; it is one of the ways to improve your CIBIL score. assessed prospective borrower. Of course, if you are CIBIL-assessed, you stand a better chance of getting a loan, though there is no absolute guarantee of a loan sanction.
For any query you can connect with CIBIL at its consumer helpline number: +91-22-6140 4300 Fax: +91-22-6638 4666 – Content obtained from CIBIL’s online sources