Have you ever placed an application for a loan or are you planning to apply for it in upcoming times? If this is the scenario, then you must be familiar with the term CIBIL score or credit score. Financial institutions or lenders make use of them to understand your credibility as a potential loan seeker. Let’s evaluate credit score and CIBIL score to know the difference between both. Read on.
What’s a credit score?
A credit score shows your credibility as a potential loan seeker. It is computed by factoring in your credit past record, which involves –
- Overall debt
- Number of operating credit accounts
- Credit utilisation ratio
- Credit inquiries for credit cards or loans
- Payback past record
Lenders ensure to use this credit score as verification criteria to understand your probability of repaying the borrowed amount on time. The higher your score, the more your chances of securing a credit card or loan approval. Your credit score also allows the lender to fix your loan interest rate. The ideal credit score must be at least 750 and above.
What’s a CIBIL score?
CIBIL’s full form is Credit Information Bureau Limited. CIBIL is a score offered by TransUnion CIBIL, India’s leading credit agency to keep thorough track of individuals’ and companies’ credit dealings. With the assistance of the credit details collected through the three divisions i.e., Micro Finance Bureau, Consumer Bureau, and Business Bureau, CIBIL furnishes CIR (Credit Information Reports) and CIBIL score. CIBIL even generates CIBIL ranks and CIBIL commercial reports meant for commercial operations.
CIBIL is one of the trustworthy scores for evaluating your credibility as a seeker. CIBIL score for personal loan and CIBIL score for home loan are usually evaluated by most financial institutions to understand your creditworthiness as a loan seeker and basis your score the lender decides whether to offer you the loan deal.
What are the main credit bureaus present in India?
NBFCs and banks cannot preserve any records, so the government-appointed bureaus keep such records to help the lenders to make such judgements. The RBI (Reserve Bank of India) has provided licenses just to specifically qualified credit bureaus for collecting and maintaining the data of individual credit behaviour as well as businesses in India. The top four bureaus in India are –
Trans Union CIBIL
In the year 2000, TransUnion CIBIL started the credit bureau services wherein the CIBIL collected and maintained credit details of more than 1000 million businesses and individuals. The majority of the financial institutions, banks, NBFCs or non-banking financial companies, and home finance businesses are CIBIL members.
Equifax was started in the year 2010 as a credit reporting company. This is a joint undertaking between Equifax of the US and 7 of India’s financial institutions i.e., Religare, Bank of Baroda, Sundaram Finance Limited, Bank of India, Kotak Mahindra Prime, Union Bank of India and State Bank of India.
Experian provides credit scores and reports on its own for both individuals and businesses. Lenders can use the information mentioned in the Experian report to make an informed decision. Note that Experian in India was the first bureau to receive a license from the new CICRA (Credit Information Companies Act). This came into effect in the year 2010.
Also Check: CIBIL Score for Home Loan
CRIF High Mark is an RBI-certified Indian credit bureau. The bureau prepares reports for agriculture, retail, MSME, rural, microfinance and commercial sectors as well as individuals. The bureau was started in the year 2005 in Mumbai.
How does CIBIL score function?
CIBIL score refers to a 3-digit numerical summary of the credit history that endows a peek into the prospective borrower’s credit profile. It is a numerical assessment of the credit record over the past few years. Suppose your report shows disciplined financial behaviour like prompt bill repayments, regular EMI repayments, an error-free profile and fewer loan applications. In this case, it would show you as a credible individual with a high chance of availing loan instantly.
The credit score ranges anywhere between 300 and 900. To understand your loan eligibility, consider the range below –
|800 and above
|740 – 799
|670 – 739
|580 – 669
|300 – 579
So, credit score and CIBIL score, are the same. Read on below to understand how you must maintain an excellent credit score.
To maintain an excellent score, you must be careful regarding using your credit-linked transactions. The listed parameters can assist you maintain a strong score –
EMI on loans – Ensure that all EMIs are paid timely and in full. Any delay can result in a negative effect on your CIBIL score.
Credit card dues repayment – If you are not able to pay the overall amount due on time, make sure you pay the MAD (minimum amount due) to maintain a good score. However, you must not continue with this habit as this may result in the accumulation of heavy debt.
Credit inquiries – The higher the number of credit card or loan enquiries, the more are you shown as credit hungry individual. This impacts your credit score in a negative manner.
Maintaining a strong CIBIL score, or credit score is important in case you are looking to avail a credit card or loan. While scores are offered by authorised Indian credit bureaus, the CIBIL in India is a TransUnion score that is viewed by financial institutions and central banks. Holding a good credit score shows you as a credible borrower who has the potential of repaying the borrowed loan proceeds timely.
So, when you place an application for a loan, your CIBIL score or credit score from any other bureau is a crucial part of a fundamental checklist for lenders to process your loan or any other credit application further. In the case you are looking for a personal loan or home loan, you may even consider approaching a digital lender to avail the required proceeds quickly.