- Credit Information agency (India) Limited, better known as CIBIL, is India’s first credit information business or agency. It records all credit-related acts taken by people and companies, including credit card and loan transactions. Although CIBIL is the most popular credit rating agency, Equifax, Experian, and CRIF High Mark are the other three internationally recognized credit bureaus in India that also provide credit ratings.
- Lenders are able to make informed decisions when assessing loan applications in India, thanks to the extensive data collated by CIBIL. The credit rating agency keeps an extensive record of all loan-related transactions done by individuals as well as businesses. Every loan or credit card repayment that was made (or missed or delayed) could be included in the credit activity record, as well as every application for a loan or credit card, the approval or denial that followed, the number of credit accounts, the total credit limit, the credit balance, and the credit utilization ratio, among other relevant information.
- Registered member banks and other financial institutions periodically (often monthly) submit the records to CIBIL. CIBIL generates a Credit Information Report, or CIR (commonly known as a credit report), and a credit score based on this information. In this article, we will discuss what a CIBIL credit score implies and the crucial role it plays in the lending business. We will also touch upon cases of taking out a Personal Loan for CIBIL defaulters and individuals without a credit score.
What is a CIBIL score and why is it important?
- A CIBIL score or a credit score is a three-digit number ranging between 300 and 900. The score is largely based on your past and present loan or credit card repayment history. It provides prospective lenders with a quick snapshot of your creditworthiness as well as your willingness and ability to make timely loan repayments. Your credit report, a comprehensive record of your recent and past credit activities, contains information on your credit score.
- The better your credit history, the greater your credit score. 79% of loans are approved to borrowers with CIBIL scores higher than 750. It can be difficult for borrowers with lower CIBIL scores to obtain financing from lending institutions. They often wind up having to pay higher interest rates or even have their loan requests rejected by lenders. To determine your eligibility, lenders will also consider other factors including your location, age, employment history, income level, stability, and profession. However, if you have a strong CIBIL score, that is half the work done, as this increases your chance of getting your loan approved.
How is the CIBIL score calculated?
Your CIBIL score is impacted by four main factors:
Payment history: Your score falls if you make late payments or default on your EMIs.
Credit mix: A balanced ratio of secured and unsecured loans is likely to be advantageous.
Multiple inquiries: Too many loan inquiries can hurt your credit score because they suggest that your debt burden can increase in the future.
High credit utilization: A high credit utilization limit can hurt your credit score because it indicates a rising debt burden over time.
Also Read: Pro Tips to Help You Manage Long Term Personal Loans
Role of CIBIL score and its importance in lending
Creditworthiness
Your CIBIL score is a numerical assessment of your creditworthiness to a lender. It communicates to your lender your likelihood and capacity to make loan repayments by the schedule. A lender will evaluate CIBIL scores and mitigate their risks by making outstanding loan offers to applicants with good credit scores. This is not to argue that people with poor CIBIL scores cannot obtain a Personal Loan based on their credit history. Financial institutions will, however, probably charge those who have average scores with greater interest rates and insurance costs. Applicants with subpar credit histories and default records face higher chances of rejection.
Loan application approval
Your loan application is more likely to be approved if you have a high CIBIL score. A lender can execute a loan application with a high credit score rapidly since the evidence of reliability has already been produced. This will therefore result in a swift transfer of funds into your account so you can use them as soon as possible.
Interest rate
When applying for a Personal Loan based on your CIBIL score, the interest rate is typically the key determinant. A borrower in good standing has a high CIBIL score. They may be in a position to receive the Personal Loan interest rate of choice and choose from a long list of lenders who provide the best loan terms and conditions. Limiting the interest rate on your Personal Loan can have a big impact on how much it will cost you and how long it takes to pay the loan off. You can determine the loan repayment duration by controlling the interest rate you’re charged. Your credit score will benefit if you pay off your loans on schedule, if not earlier. When you decide to apply for a Personal Loan online in the future using your CIBIL score, you will be well-positioned because of this.
Loan amount
The amount of your Personal Loan is also determined by your credit score. The higher your credit score, the larger the loan amount that will be approved. Aside from the benefits listed above, a good CIBIL score ensures that your Personal Loan is approved with minimal documentation.
How to get a Personal Loan without CIBIL score?
Individuals taking out their first loan may not have a credit history. If you can show proof of a consistent income, you can acquire a Personal Loan without a CIBIL score at a reasonable interest rate. In such applications for a Personal Loan without a CIBIL score, the lender may have specific eligibility requirements, such as having a certain steady income, working for the same company for a certain period, and so on. Your income will determine your eligibility for a Personal Loan without CIBIL score.
How to get a Personal Loan for a CIBIL defaulter?
When it comes to Personal Loans for CIBIL defaulters, banks or other financial institutions can either lengthen the loan repayment tenure or raise the interest rate charged on the loan after discussing it with the borrower. The good news is that there are ways for CIBIL defaulters to acquire loans. Some of these are:
- Applying with a co-applicant
- Borrowing at a higher interest rate
- Taking out a secured loan (i.e. with collateral)
- Opting for online lenders
- Improving credit score before applying
- Final thoughts
Your credit score is derived using a comprehensive evaluation of your creditworthiness. Lenders rely on your credit score to provide them with an accurate picture of your credit history. A strong credit score demonstrates financial maturity and is used to evaluate your loan or credit card application. Monitor your CIBIL score and credit profile regularly to ensure you are credit ready. Start working on boosting your score right away.
