What Is CIBIL Score and Why it Matters

Planning on taking a loan? Want to make sure it is approved and processed quickly? Looking for a loan at a lower interest rate? Then, make sure your CIBIL score is good. At this stage you may have more questions like what is CIBIL?

The Credit Information Bureau (India) Limited (CIBIL) is the most popular of the four credit information companies licensed by the Reserve Bank of India. The RBI also licenses three other companies to function as credit information companies. They are Experian, Equifax and Highmark. However, the most popular credit score in India is the CIBIL score. Let’s find out what is CIBIL score is.

CIBIL Limited maintains credit files on over 600 million individuals and over 32 million businesses. CIBIL India is part of TransUnion, an American multinational group. Hence, credit scores are known in India as the CIBIL Transunion score.

CIBIL Score is a 3-digit numeric summary of your credit history, rating and report and ranges from 300 to 900. The closer your score is to 900, the better your credit rating is.

When you want a loan, you must ask yourself what is my CIBIL score? And will I be creditworthy? Your bank will check your creditworthiness through your credit history and make a credit report.

A credit history is a record of a borrower's repayment of debts. A credit report is a record of the borrower's credit history from several sources, including banks, credit card companies, collection agencies, and governments. A borrower's credit score results from a mathematical algorithm applied to credit information to predict your creditworthiness.

A CIBIL credit score takes time to build up, and usually, it takes between 18 and 36 months or more of credit usage to obtain a satisfactory credit score. 

The CIBIL score plays a critical role in the loan application process. When someone approaches a bank or a financial institution for a loan, the lender first checks the applicant’s CIBIL score and report. If the CIBIL score is low, the bank may not even consider the application further. 

If the CIBIL score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy. 

The CIBIL score works as a first impression for the lender; the higher the score, the better your chances of reviewing and approving the loan. The decision to lend solely depends on the bank, and CIBIL does not decide if the loan/credit card should be sanctioned.

Typically, a score of 700 is considered good.

Timely Payments: Always pay your Credit Card bills and loan EMIs on or before the due date. Consistent, timely payments positively affect your credit score.

Low Utilisation: Keep your credit card balances well below the credit limit, ideally under 30%. High utilisation can negatively impact your score.

Limit Credit Inquiries: Minimise the number of credit applications to avoid multiple hard inquiries. Frequent applications can reduce your credit score.

Regular Report Checks: Review your CIBIL report periodically to spot and correct any errors or discrepancies that might affect your score.

Reduce Debt: Pay outstanding debts, including credit card balances and loans, to lower your debt burden.

Build Credit History: Use credit responsibly, even with small limits, to establish a positive credit history. A strong credit history supports a higher score.

You can read more on how to improve your CIBIL score. 

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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action.