What is a CIBIL score and why it's important?

Last Updated: Mon, Jul 04, 2016 13:14 hrs
CIBIL

Credit Information Bureau (India) Limited is the first credit information agency in India, which was founded in August 2000. It started providing the credit information and maintaining the payment records of the individuals since then.

What is CIBIL score?
CIBIL score is nothing but the numeric representation of the credit history of an individual. This score is required for the evaluation and the approval process in the loan applications. For mitigating the loss and lending money to the consumers, the financial institutions and banks highly depend on the CIBIL score for evaluating the potential risks. So, CIBIL score plays a great role in the Indian financial system in which the consumers can settle their credit quicker and the loan providers can manage their business in a proper way.

Calculation of CIBIL Score:
Depending upon various factors, the CIBIL score of the individuals is calculated. Some of the essential factors are outstanding debt, history of payments, type and quantity of the loan accounts, duration of the loan history and many other factors. When the final score is obtained, they are sent to the financial institutions or banks for the evaluation purpose. Every bank has their benchmark for considering a score as good or bad. Therefore, it may differ across various banks and the financial institutions.

How The Score Works?
For approving the loans, the lending companies accumulate your repayment history and credit score, which may have been spread throughout various organizations. CIBIL organizes all your data and then present them to financial institutions and banks. This particular report known as the Credit Information Report (CIR) determines whether your loan can be approved or not.

So, whenever the lending organization seeks for CIR from CIBIL, a control number including nine digits is generated. That control number is used by the CIBIL for tracking the particular data from the database. Every time new request is being made, a new control number is generated.

How Important Is the CIBIL Score?
As CIBIL plays the role of the prime factor for your loan approval, it is very important in your financial journey. Here are some of the aspects that get affected by CIBIL score:

  • Interest Rates: For obtaining the best interest rates and terms, you are required to obtain a decent CIBIL score. A good CIBIL score will help you in saving money with lower interest rates for your loans.

  • Credit Approvals: Your eligibility for obtaining the loan will be determined by the CIBIL score. A worse CIBIL score will decrease the chances of obtaining the loan without hassles. So for obtaining mortgage loan, car loan, personal loan, credit card or home loan, a proper CIBIL score is required.

  • Other Aspects: Not only for the loan approval and gaining better interest rates, it can help you in availing lesser premiums in insurance plans or a new plan of your mobile phone.

Benefits of Obtaining Good CIBIL Score:
If you can responsibly make your payments, you can easily score good in your CIBIL. Here are some of the advantages of gaining a decent score:

  • Increase Of Negotiating Power.

  • Approval of leased or rented apartments or houses without any hassles.

  • Avail the line of credit without any difficulty.

  • Security deposit is not required for cell phones.

  • Interest rates for home loans and car loans can be lowered.

  • Quick process in the mortgage approval.

How To Gain Access To Your Score?
You can avail the score with just a click. You can go to the official website of CIBIL and then fill up the required personal details and make a payment of the fees. You are now ready for authenticating your identity in the website of CIBIL. As soon as the authentication is done, you will be mailed your CIBIL score on the same day.

Does The Score Checking Have Any Negative Effect?
When you are asking for your own CIBIL score, it is considered to be the soft inquiry. It will definitely not have any negative impact on the score. But when the lenders enquire for the score, the process is known as a hard inquiry. If you apply too many loans within a very less time, it will generate many hard inquiries. This can negatively affect your CIBIL score.

How Frequent Can You Access Your CIBIL Score?
You can check your CIBIL score once in a year. If you are not regular with this checking process, you must access the report at least six months prior to the loan application. This process is required for ensuring that the CIBIL report is free of any discrepancies.

As you now know the importance of CIBIL score, try to keep a periodical checking process to ensure your financial health. You must keep in mind that the score does not depend on your level of income but it depends on how well you are managing your credit!

Naval Goel is Founder & CEO PolicyX.com