Do you know what is CIBIL? What is your CIBIL TransUnion score? Did you know that each time you pay your credit card bill or a Home Loan EMI or an auto loan EMI or any other loan EMI, your transaction as recorded by the bank is shared with a bureau that maintains you repayment history. Did you know that if you default in paying the EMIs, your CIBIL score takes a hit and your chances of getting new loans are reduced? Well, you better be disciplined about paying back the borrowed money.

What is CIBIL? As stated by them “Credit Information Bureau (India) Limited or CIBIL is a Credit Information Company (CIC) founded in August 2000.” They play a pivotal role in India’s credit system. Whether it is to help loan providers manage their business or help consumers secure credit faster and at better terms, the use of CIBIL’s products have led to a massive change in the way the credit life cycle is managed by both loan providers and consumers.

CIBIL collects and maintains records of an individual‘s payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to lenders in order to help evaluate and approve loan applications.

What is CIBIL TransUnion Score? It is a score that represents your (borrower’s) credit history as a consumer of credit. It is a three-digit number ranging from 300 to 900. Higher the number, better you are in the eyes of credit institutions and better are your chances to get loan application approved. The credit score helps loan providers quickly determine, who they would like to evaluate further to provide credit. CIBIL data indicates that loan providers prefer credit scores that are greater than 700.

What affects your score?

  • Defaults in your payment history. Well, obviously this reflects your inability to payback. Any default and/or late payment gives a sign of insufficient liquidity and hence a risk to the lender. If you maintain timely payments with no defaults it keeps your score high.
  • Too many unsecured loans. If you have too many credit card loans and personal loans, it is taken as a negative because the borrower does not have collateral to settle the loan against in case of default. Unsecured loans are easy access to money. They are also the most expensive forms of credit. The higher the number of unsecured loans, higher would be the monthly payments due to high rates of interest. You are better off not having any unsecured loan or paying it off first (as opposed to secured loans like home loans or auto loans) to help your score remain high.
  • High utilization of credit limits. If you have been using your credit cards exhausting their limits time and again, it reflects your high spending patterns. While high spending patterns with your credit card may not necessarily be a bad thing, but an increasing credit card balance is taken as increasing repayment burden and negatively impacts your score. So don’t use too much credit.
  • Always looking for credit. If you have applied for too many loans very frequently, CIBIL records this behaviour as ‘Credit Hungry’ and views your application with caution. To them it is a sign of a desperate applicant going for more debt. The concern around applicant’s capability to payback for additional debt adversely impacts the score. Always ensure that your EMI’s are no more than 45% of your take home salary.

So, have you checked out your CIBIL report and TransUnion score? If not, do visit www.cibil.com and place a request for your report and score. I am sure it will help. Also, make it a habit to check your report and score at least once a year, especially if you have any active credit cards and loans outstanding.