Understanding CIBIL score: Importance and factors affecting it!

What is Credit Score?

A Credit Score is three digit summary of your Credit behaviour/history. The score is derived from Credit Information Report, which is other words is the Credit payment history of loan availed over a period. This report does not contain the history of your fixed deposits or savings account.

How Do You Read Your Credit Report?

The report has detailed information on the credit you have availed, be it a home loan, car loan, personal loan, overdraft facility or Credit card. It is possible to download a free report with various details of the report and the credit score. 

1. The CIBIL score is calculated based on the credit behaviour that is reflected in the Account and Enquiries section. The score ranges between 300-900. A score above 700 is considered good.
2. The report also contains details like your name, gender, an identification number such as PAN, Passport details, and Voter’s number.
3. The Address and contact information is also mentioned in the report.
4. Monthly and Annual income details are reported by banks and Financial institutions to CIBIL.
5. Detailed record of credit facilities including the name of the lender, type of loan or credit, account numbers, Start date, end date, current balance and a month on month record. The details of past three years are mentioned in this record.
6. The most important detail, every time an inquiry is made for credit, it gets registered in the CIBIL report.

The importance of CIBIL Score

CIBIL scores are highly significant when availing credit, especially loans. Banks and Financial institutions Check your CIBIL Score before approving a loan. When you apply for a loan or credit, the lender will check the CIBIL score, and your loan may be rejected due to the low rating.  On the other hand, if the score is high the lender will consider the application and go on to the further formalities.  The higher your score, the better the chances of loan getting approved.

Where do your CIBIL score matter?

• For Credit Approvals: AS mentioned above CIBIL score plays a vital role when applying for a loan. Lenders consider this score as an eligibility factor to grant credit. A bad CIBIL score would lessen the chances of the loan being approved.
• For Low-Interest Rates: A good score would also help in getting the competitive interest rate on loan.
• Employment: Off late even corporates have started checking the score to ascertain how responsible employee is towards his liability. A good score is a certificate that the employee is in charge and focussed.

Factors Affecting Credit Score:

The most important factor affecting credit score is the repayment history.  Payment record forms almost 30% of the Credit scoring.  Timely payments play a substantial role in building a good credit score.

Below are few important factors affecting the CIBIL score:

1. Timely Payments: The higher the percentage of timely payment the better is your Credit Score. The payment record is the most high rated factor used in calculating the score. A consistent payment pattern denote a dependable borrower. Banks are thus reassured that there is a high probability of timely payments in future.  Even a single late payment can have adverse effect on the score, it is thus important to make timely payments.
2. Negative Marks:  Negative remarks in the report can denote one of the many things. Foreclosure: accounts in collection due to payment default.  This is a highly weighted factor and negative remarks can affect the eligibility for a loan.  Negative mark would mean you were not able to adequately manage the credit and aids as a warning to potential lenders.
3. Length of Credit History: Longer credit history gives reassurance to the bank as they have substantial data on your credit behaviour. For example, if you own a credit card for more than 8 years, lenders can see the repayment record of 8 years. On the other hand if you just got a credit card, banks do not have sufficient information. Therefore, it is not advisable to give up on your old credit cards, as they provide a good credit picture.
4. Number of Enquiries: Multiple hard enquiries can reduce your credit score to a considerable level. It is a sign to the potential lender that you are applying to several lenders to maximise the chances of securing loan.

All in all, a responsible behaviour towards your credit is all it needs to secure a good score. If there are any anomalies, it is advisable to fill the form available on CIBIL’s website with necessary documents to get it corrected.  It is also important to remember that CIBIL is only a data base that receives information from various platforms. It personally does not contribute anything to lower the score. The banks and financial institutions are the ones that provide information to CIBIL which CIBIL then consolidate and scores.

How to Get a Loan Fully Approved?

Loans are ubiquitous in our history textbooks, yet they seem as daunting as they did at their inception. Since we are in the age of mass manufacturing goods, to afford them, we often need to take loans.

We have home loans, car loans, business loans, education loans etc. Since the banking sector is so organized, you can get a fair idea about your eligibility for a loan. You can check your credit score and debt to income ratio online; this will give you a fair idea of your ability to return the loaned money, and that’s all the banks need to approve your loan.

Types of Loans:

• Secure Loans: In this type of loan, the borrower has to submit an asset as collateral to get the loan approved.
• Gold Loans are an excellent example; by submitting the assets as collateral, the lender can sell the collateral in order to complete the borrowed sum of money. This case is usually applicable to large sums of money, like car loans or home loans.  The eligibility for this loan is determined by the credit score.
• Unsecured loans: these are usually for smaller sums of money and don’t need any collateral. They have higher interest rates than secured loan. Example: credit card, personal loan, bank overdraft. Approval of loan is based on your credit score.
• Demand:  Demand loans are for short periods of time and don’t have a fixed date of repayment. They are based on floating rate of interest i.e. the rate depends on the primary leading rate.
• Subsidized Loans: This is a type of load which has a direct or indirect subsidy. For example education loans, education loans don’t have interest rates in the US.
• Congressional Loan: AKA soft loan is a loan taken on a lesser rate of interest than the market or grace periods. These are the kinds of loans among nations.

S Steps to Getting a Fully Approved Loan:

·      First and foremost you need to check your credit rating. Your credit rating is your ability to pay back the money you borrowed. The Credit Information Bureau of India Limited (CIBIL) states that a minimum score of 700 is required to get a loan approved.

·       Secondly, calculate your debt to income ratio, meaning that you should have enough money to pay the EMIs. The ratio should not exceed 40%. When calculating your debt to income ratio, keep in mind all the monthly expenditure like taxes, fees, and insurance premiums. You should have some money left to pay your loan instalments.

·      Now that you know that you can pay off the loan amount, you must check the eligibility criteria. With different kinds of loan, you will have to go through the eligibility criteria for each of them.

For Example Home Loan Eligibility:Minimum age of the borrower is 21 Years:

1. Maximum age to repay is 60 years

2. A minimum income varying from 5-7 lacks is necessary

3. A good credit score should be maintained

4. A person should have sufficient income to pay the standard EMI so that banks can provide loans upto 75-80% of the cost of property, i.e., debt to income ratio.

• ·         The most important thing that a bank looks for is your ability to pay off the loan that you took. Hence after checking your score and debt to income ratio, you are just a few formalities away from a fully approved loan. You need to have all the proper paperwork in order to receive the loan.

List Of Documents You Will Need:

1. Completed loan application
2. 3 Passport size photographs
3. Proof of identity (photocopies of Passport/ Voters ID card/ Driving licence/ PAN card)
4. Testimony of business address for non-salaried individuals
5. Proof of residence (photocopies of recent Telephone Bills/ Property tax receipt/ Electricity Bill/Passport/ Voters ID card)
6. Statement of Pass Book for last six months/ Bank Account
7. Personal Assets and Liabilities statement
8. Signature identification from present bankers.

Ø  Lastly, you need to help the loan agent in completing your verification. These are false safes for the lender; they ensure that you will be able to pay back the borrowed sum of money.

Who issues Credit Ratings Or Credit Scores

Credit Scores or Credit Ratings are basically meant to understand the creditworthiness and the ability of an individual to repay their obligations. Every individual desires to have a good credit rating and credit score. Having a good credit score and credit rating is always good for a borrower.

https://www.creditseva.com/cibil-credit-score

Who issues Credit Scores in India?

The Reserve Bank of India(RBI) has given the authority to the companies that have been registered under The Credit Information Companies (Regulation) Act. This is authorization has been done to provide credit scores or ratings depending on the previous track records that have been reported by various credit institutions and banks.

CIBIL is one among the other leading credit information bureaus of India like Equifax and Experian. Any of these three credit bureaus issue the credit scores. Amongst the others, CIBIL is the oldest credit bureau. An individual needs to provide their data to all the credit bureaus because some lenders use CIBIL and some of them use the other credit bureaus.

Credit Score: A credit score indicates the well being of the credit health of an individual. Higher the credit score of an individual, higher is the creditworthiness of that individual.

Credit Rating: A credit rating  will  decide whether a company will pay back the debts taken by it.

Who Issues Credit Ratings in India?

Credit Rating is the done to evaluate the creditworthiness of an instrument of an organisation. This evaluation is done by considering the overall risk of the business of a company and the profile that is related to the financial segment of the company. With the help of credit rating, a link is developed  between return and risk. Individuals can use credit rating to understand the level of risk that is associated with their financial transactions. Credit rating is usually done by Credit rating agencies.

Important Points About Credit Rating:

1. It is a judgement of the intention of a borrower and their repayment ability.

2. Credit rating is not meant to recommend the sale, purchase or holding of the security of the borrower. It is just an opinion that helps in taking the decision to sell or purchase the security of the borrower.

3. The credit rating agencies usually change ratings only for the purpose of important as well as perpetual changes in the financial and operational segments of the company.  

4. Credit rating agencies known to rate the securities and not rate the issuers.

How can You  Get Your Credit Score?

The following steps are to be followed in the process of getting your credit score.

1.Upload all the necessary information to any of the credit bureaus

2.You can also  log on to the website of either of the credit bureaus and request for the getting a credit score.

A bad credit rating and score should be completely avoided by any individual. This is because whoever has a bad credit rating and bad credit score is in a risky situation. However this situation can be avoided by making all the payments on time and not defaulting on any payment that is due.

Credit scores are calculated depending on certain factors which are as follows

1.Credit Utilization

2.Individual’s Recent Activity

3.Credit history’s length

4. Outstanding Debt

5.History of Payments made by an individual

The factors listed above are useful in improving the credit score in different ways and using various techniques. Considering these factors an individual can work upon their credit score and improve it in such a way that their loan or credit card applications are approved in an easy manner without any hassles in the loan approval process. Therefore it is to be noted that maintaining a good credit score is essential for an individual to have a good and secured future from financial point of view.