Money9 Helpline | Here’s a guide to understand your CIBIL score

Your credit score decides if your next credit card or loan application will be approved or rejected. A good credit score not only ensures a hassle-free loan approval, it also helps you negotiate the rate of interest with your lender.

What is a CIBIL Score?

Started in 2011, TransUnion CIBIL Limited or CIBIL is an Indian company having access to the credit information of more than 600 million people. It stores details of all your financial transactions and gives a 3-digit score between 300 and 900. This score is referred commonly as your credit score and is indicative of your credit worthiness.

What is the meaning of a high credit score? It shows that your previous track record of borrowing and repaying money has been neat. This gives a fair idea to your lender about how dependable you may be with the amount it lends you.

Importance of CIBIL score?

Since credit scores are directly linked to your repaying capacity, your potential lender will definitely have a look at it before deciding whether you’re eligible for a loan and how much should be the amount and interest charged thereof.

The credit score plays a vital role for unsecured or collateral-free loans since the risk is relatively higher here. If you ever want to take an emergency personal loan, your credit score will play a crucial role in the process. Not just at an individual level, even corporate companies are given credit ratings that impacts its ability to seal investments.

A CIBIL score of 750+ is considered as ‘ideal’ and will help you get through high risk personal loans and credit cards. However, if your score is below 750 then it may be tricky for you to borrow funds from banks or NBFCs. Scores somewhere near 750 can fetch you loan but at a relatively higher interest rate but if the scores are way below 750, the application can simply get rejected.

Factors that affect CIBIL score?

Major factors that affect your CIBIL score include your present income, existing debts, past credit repayments, any default or lapses in previous repayments and any rejection for a loan you may have applied for. You must, however, remember that debt isn’t bad for you. In fact, the only way to build a good credit score is to take debts and repay them timely.

Any standard CIBIL report has your complete credit summary, account history, public record (criminal arrests or bankruptcies, if any) and credit enquiries.

How is your CIBIL score determined?

The repayment history contributes 35% to the score, your credit balance and utilization ensures another 30% to the score, the duration of availing any credit adds 15% to the score while the remaining 25% is contributed by any new credits adding to your history (15%) and your credit mix (10%) that refers to a combination of secured and unsecured loans as well as short term and long term credit.

Common queries

In a recent episode of Money9 Helpline, callers put several queries related to how a CIBIL score may impact the scope of future loans.

“Currently, I am debt-free, but 4 years ago, I had to restructure a personal loan. Is it going to reflect in my CIBIL score and hamper my chances of getting a loan?”Biswarup Saha from Kolkata asked.

Money9 Helpline hosted Abhinav Kaul, senior director – strategic partnerships of Bank Bazaar to resolve queries on how to maintain a good credit score.

“You basically need to restructure your loan when you’re unable to pay it off. So you approach your bank to adjust EMIs or interest rates so that the burden can be lessened. This restructuring will most probably be reported. You should first download your credit score and check if the restructuring is reflected in the score,” Kaul said.

Another Kolkata caller, Sharmishtha Ghosal asked, ” I have never taken any loan from any organization. I have been working for the past 15 years. Ideally, what should be my CIBIL score under these conditions?”

“If you have never availed a loan in your life then your score will be zero. The ‘zero’ indicates that this person has not taken any loan. If the loan is taken in recent times up till 6 months then the core will be negative. A proper score will be designated post this,” Kaul explained.