A Mir­ror to Your Fi­nan­cial Health

Consumer Voice - - Front Page -

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 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

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