Understanding CIBIL score in a nutshell

Over the last three decades, the Indian middle class has transformed incredibly! In a handful of Indian cities,the energy of continued economic growth has pulled a large mass of people out of poverty and accumulated them as the middle class. The average household income is slated to triple from 2007 to 2027, per a McKinsey study. And, with that, the spending pattern of this demographic has also gone through sea change. The erstwhile thrifty people, ensconced in the simple pleasures of life, are today the consumerist cosmopolitans, with luxurious aspirations.

The Indian middle class today buys houses and cars, travels internationally and educates the kids in expensive, private institutions.

The proliferation of consumerism among the middle class in India has brought with it the obvious evil of the culture of credit. India has stood witness, and even suffered the aftershocks, to the disaster that pervasive credit culture brought forth in the western economy. And, therefore, even as we march boldly in the footsteps of the developed nations, it is important to keep an eye on the effect of credits on our financial wellness. That is where CIBIL comes in!

So, what is this CIBIL score?

Transunion CIBIL (Credit Information Bureau India Ltd.) is India’s leading credit information company. It provides credit reports to individuals and corporate entities, to enable understanding of their credit history and financial reputation. CIBIL uses a complex algorithm to summarize one’s credit history into a three-digit numeric score ranging between 300 and 900. The variables that affect an individual’s CIBIL score include, but are not limited to, their credit payment history, number and types of loan accounts, outstanding debt etc.

Contrary to popular understanding, the following factors do not influence a person’s CIBIL score:

1. Savings
2. Education
3. Income
4. Gender
5. Race/ethnicity

Once the score is calculated, they are sent over to banks and financial institutions for their assessment and personal bench-marking of a person’s credit worthiness.

Typically, a CIBIL of score of 750+ is considered a healthy one for loan approvals.

Does that mean CIBIL keeps tabs on all my credit transactions?

Almost all the mainstream financial organizations in India are members of CIBIL. In case you are transacting with any of them, CIBIL has access to the information and is constantly scoring your credit-worthiness.

And I should care about this score because..?

CIBIL scores are an important point of reference for a loan approval.

If you ever need to borrow money from a financial institute in India, a high CIBIL score would ensure an easy approval.

A poor score, on the other hand, might mean that your loan request would either be rejected or approved at very high interest rates. In fact, a great CIBIL score can even get you easy access to a postpaid telecom connection or a low premium insurance cover.

I don’t know my CIBIL score. Is that a problem?

Well, if you are not looking at availing credit soon, it is not a necessity. But, you must understand that whether you care or not, the system is assessing your financial reputation, constantly. And, unfortunately, since it is a mass processing system, it is not free of errors.

CIBIL is known to delay updating latest credit information, confuse names and misdirect credit information, and has, on several occasions, dealt with the severe crime of financial identity theft.

Therefore, it is prudent to keep a tab on your score, to ensure you are assessed rightfully. In case of any discrepancy, anyone can work directly with CIBIL to correct the error.

How can I get my CIBIL score?

CIBIL has started a subscription service to provide individuals with their Credit reports. The one-time report costs a mere INR 550 and needs only basic information to create. You can get your score here.

A low CIBIL score is neither set in stone, nor a lifetime deterrent in getting financial assistance. If you improve your credit payments, your CIBIL score will improve. Also, different financial institutions have different credit policies and will benchmark their credit approval threshold accordingly.

It cannot be argued, however, that the CIBIL score is a very important indicator of one’s credit viability and needs to be maintained to ensure stress-free finances.

Would you like to share your experience with CIBIL scores and loan approval/rejection? Comment below or write to us at editor@blankslatechronicles.com

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About Anumita Ghosh

Anumita believes her calling has to do with the written words. She loves to write and read, and has recently given up a(n) (almost) rocking career in the Corporate to pursue her passion. Yes, she is slightly off her rocker, but then the society has been largely accepting of her madness. She is the co-founder of Blank Slate Chronicles and a struggling domestic apprentice, not to mention a loving (yet inadequately skilled) mother to a toddler.

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