Credit Information Bureau (India) Limited (CIBIL) was introduced since 2000. It operates as a Credit Information Company and has continued to work towards sustaining its mandate.
The mandate of CIBIL is gathering and maintaining the financial records (on credit cards and loans) of persons and corporation which will be made available to lenders on demand in order to assist them in deciding whether or not to grant a loan to a borrower.
It is part of the mandate of CIBIL to evaluate and ascribe scores to the financial records of persons or corporations which they have gathered. The scores or grades ascribed to a given financial record go a long way to determine the amount of money to be granted a loan to the bearer of the financial record.
Sometimes the financial and the CIBIL score will lead to a total refusal to grant a loan to a borrower.
This study will consider the required CIBIL score for a personal loan while briefly highlighting the following:
- The meaning of a CIBIL score
- The relevant factors which affect the CIBIL score
- How to Obtain CIBIL Score
- What is the CIBIL Score Need for Personal Loan
- The Effect of a Low CIBIL Credit Score
- When there is no CIBIL Score and How to Create a Credit History
- Preliminaries to the Application for Loan
- What are the Factors Considered Before Granting or refusing Loans?
The meaning of a CIBIL score
After receiving the record(s) of a person from various financial institutions, the records will first be harmonized and graded. The harmonized record is the CIBIL record on the financial activities of such a person while the score (figure) given to such record is the CIBIL score.
The record and the score operate to inform a potential lender of the creditworthiness of a borrower. The CIBIL score depicts the financial wellbeing of a person.
The Relevant Factors affecting CIBIL Score
There are factors which account for the score that will be given to a CIBIL record after evaluation. These factors may either affect a CIBIL score positively or negatively.
The Factors Affecting the CIBIL score positively includes:
- payment of credit card loans on time.
- Payment of an Equated Monthly Installment loans on time.
- Outright paying off an entire loan without necessary waiting for the due date
The Factors Affecting the CIBIL score Adversely:
- Failure or late payment of credit card loans.
- Failure or late payment of the Equated Monthly Installment loan.
- Continuously spending to the limit or about 75% of the credit limit in a credit card.
- Having several unsecured credits.
How to Obtain CIBIL Score
The procedure for obtaining a CIBIL credit score is as follows:
1. Log on to www.cibil.com/creditscore, and you will be directed to the credit score section of the CIBIL website.
2. Choose a subscription and provide the following information like Permanent Account Number (PAN), valid email address, date of birth and gender.
3. With the available payment platforms like net banking, credit card, debit card or cash card make payment for the subscription.
4. Questions will be asked pertaining to your loans and credit cards. Then CIBIL will request for more details on your transaction from the mentioned financial institutions.
5. The feedback from these financial institutions will comprise the financial record. The financial record will be authenticated and graded after which it will be emailed by CIBIL to the email address provided at the point of registration in paragraph (b) above.
What is the CIBIL Score Need for Personal Loan
It is usually assumed that once a person becomes an adult and gainfully employed such a person is automatically entitled to get loans from lenders. This is not so as the credit score of the financial record of such person plays the most vital role to determine if the person is entitled to loan and the amount to be given to such person.
On the completion and receipt of CIBIL credit score, it is a common knowledge that two or more persons will not likely score the same grade. But the trite question at the moment is what is the minimum grade which must be attained by a private person in order to be entitled to a loan?
Generally, the least score which can be given to a credit report is 300 while the maximum is 900. Where a person scores above 750 as the persons CIBIL credit score then he is deemed to have qualified for a personal loan. A score in excess of 700 is an added advantage to the borrower.
Due to the unsecured nature of a personal loan good and high CIBIL score is a major criterion for the grant of loan. It is only the CIBIL record and score that portrays a borrower as frugal and worthy.
The Effect(s) of a Low CIBIL Credit Score
It is not in all cases that the CIBIL score will be good. There are times when credits may decline. Once a CIBIL credit is below the required 750, the borrower is obligated to improve the score. The following are the steps towards improving on a low CIBIL credit score:
- Identify what exactly led to the decline in the CIBIL credit score. Late payments or defaults are the major reasons for fall in CIBIL credit. Just as the case where early payment leads to increase in the CIBIL score.
- Ensure not to default in paying for the subsequent loans on the credit cards or the EMI.
- Where the CIBIL credit score is low owing to multiple and rejected personal loan applications, then in the interim stop making further applications. Work towards clearing any subsisting loans as it will increase your subsequent credit score.
- Where there is a subsisting credit card loan, do not exhaust it. Using out an entire unit in a credit card does not show a good financial habit on the part of a borrower.
When there is no CIBIL Score and How to Create a Credit History
There are instances where a person does not have a credit record from where his CIBIL credit score will be calculated. This may sound rare or impossible but a typical example of such a scenario is a student who has never accessed any credit.
In this case, maybe the financial need of the person has always been on his guardian or parents. This means that such a person does not have any credit history.
In this situation accessing loan will be a very difficult task. The person will need to create a credit history which may be as follows:
- Such a person will resort to securing a secured loan for a vehicle or a mortgage for a house because secured loans are less stringent to obtain. This will now be the first credit history of such person.
- The person can take out a credit card loan from a commercial bank with which such person has a long term banker-customer relationship. Within a reasonable time convert the credit card loan to an unsecured loan.
- If the person is an employee of a high profile company the with the status of the employer he can easily obtain a credit card loan or alternatively, through the company the employees have a loan facility with a bank. Where any of these is the case such person can rely on them to establish a credit history.
Preliminaries to the Application for Loan
Before a person even after attaining a good CIBIL credit score, it is important that such a person resolves the following preliminary issues before entering into a loan agreement. These preliminaries are as follows:
- It is a common practice for lenders to checks an applicants-borrowers CIBIL credit score before deciding whether or not to grant a loan to such a person. Therefore it is imperative that the borrower makes such self-assessment before making the application for a loan in the first instance.
Where the assessment is made by the lender and the borrower is found to be unfit for a loan, it will further demean the financial image of the borrower.
- Where the loan application of a borrower is refused, it will be advisable for the borrower to exercise some patience and restraint before making another application. Where the multiple application for a loan by a person is refused it lowers the applicants’ credit score.
- Prior to entering into any loan agreement, it is vital to negotiate all the terms of such loan with particular reference to the interest rate on the loan. A good CIBIL credit score which is a minimum of 750 is added advantage which helps the borrower to negotiate a favourable interest rate on the loan he is seeking.
What are the Factors Considered Before Granting Loans
It has been stated severally in this study that a lender will consider the CIBIL credit score of the borrower in order to determine whether or not to grant a loan and the amount of loan to be granted to the borrower.
If the borrowers CIBIL credit score is low the loan application will most likely be refused, a lower amount may be granted to him but with a high-interest rate.
In contrast, where the CIBIL credit score of the borrower is high, the borrower will access loan easily and in a better position to negotiate a better interest rate and other applicable terms and conditions.
The major factor to be considered while seeking for a loan is the credit score in addition to being of full legal age and gainfully employed.