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Understanding the Relationship Between CIBIL Score and CIBIL Report

Published on Apr 3, 2024Updated on Apr 5, 2024

Understanding the Relationship Between CIBIL Score and CIBIL Report

When it comes to applying for credit or a personal loan, you will frequently come across the terms CIBIL score, CIBIL report, and credit score.

But what exactly do all these terms mean? What is the difference between credit score and CIBIL score, CIBIL score and CIBIL report? Is one more important than the other? We will cover all this in our article, along with the benefits of and strategies to maintain a healthy CIBIL score and report.

What is a CIBIL score?

A CIBIL score is a 3-digit value that acts as a summary of your CIBIL report. It is assigned by CIBIL, one of India’s 4 leading credit information companies. Among other factors, the CIBIL score is based on your credit history and payment behaviour.

A CIBIL score ranges from 300 to 900; scores of 750 and above are generally being considered as excellent. The score represents the last 24 months or 2 years of your credit behaviour, which can include the following patterns -

  • Whether you have existing credit cards, loans, or both.
  • Your credit utilisation ratio, that is, how much credit you use against the credit limit available to you. Ideally, the ratio should be below or equal to 30%.
  • How often do you apply for new credit?
  • Do you have a consistent history of making timely repayments or if you have a history of loan defaults?

How CIBIL Score is Calculated

There are 4 major factors that affect your CIBIL score -

  1. Payment history: Late payments on credit card dues and recent or consistent EMI defaults will lower your score, while a history of timely payments will have a positive impact.
  2. Amount of credit utilisation: Using too much credit compared to your income or frequently reaching the credit card limit will reflect negatively on your CIBIL score. This is because such activity can indicate difficulty in managing expenses, which will lead lenders to consider you at a higher risk of loan default.
  3. Credit length and mix: A long credit history showing responsible management of different types of credit (secured and unsecured loans, credit cards) can increase your score.
  4. Too many credit inquiries: Applying for credit or loans too often in a short time can lower your CIBIL score. It can be a signal of an increase in debt burden, increasing the risk of sanctioning a loan.

Please note that the exact weightage assigned to each factor is at the discretion of CIBIL. Other credit information companies may consider slightly different factors with different weightage.

Importance of CIBIL Score in Loan Approval Processes

When you apply for a personal loan, the lending institution will look at the CIBIL score to determine your creditworthiness. Creditworthiness is essentially a measure of how likely you are to repay the borrowed money on time. The closer you are to 900, the more you will be viewed as creditworthy which will increase your chances of fast loan approval. It is important to note that the final approval will also depend on other eligibility criteria such as age, type of employment, monthly income, and location.

In addition to increased chances of loan approval, a high CIBIL score can also get you favourable terms like lower interest rates. A low-interest rate means lower monthly payments, ultimately decreasing the overall cost of the loan.

Range of CIBIL Scores and their Implications

Credit Score

Rating

Implication

NA or NH

-

The individual is either new to the credit system and does not have enough credit history to be scored, or there has been no credit activity for the last couple of years. They may still be able to apply for loans provided they meet other eligibility criteria.

300 - 499

Poor

The individual may have a history of loan defaults and missed or late payments. They will be perceived as high-risk borrowers and will find it difficult to obtain credit.

500 - 649

Average

The individual may have some instances of loan defaults or missed payments. They may be able to get a loan with higher interest rates and stricter loan terms.

650 - 749

Good

The individual may have a decent credit history with only a few instances of loan defaults or missed payments. They may be able to qualify for a loan with moderately favourable interest rates and loan terms.

750 - 900

Excellent

The individual has consistently demonstrated responsible credit behaviour and has a history of timely payments. They are likely to qualify for a loan with favourable loan terms like low-interest rates and flexible payment tenures.

Please note that the above information is only indicative. Different lenders may have a different rating scale and different interpretations of the CIBIL score.

Must Read:Tips To Get An Excellent CIBIL/Credit Score 900

What Factors Impact your CIBIL Score?

There are several factors that can affect your CIBIL score. Here are some of the most important -

  • Your credit repayment history reflects how responsible you are about your financial obligations. Late payments or loan defaults will bring down your score.
  • Your credit utilisation ratio reflects how much credit you are using compared to the available credit limit. A ratio of 30% or less will reflect positively on your CIBIL score.
  • Records of outstanding or unpaid debt can be very harmful to your score. Make sure that you are clear of any outstanding debt.
  • A long credit history that shows you have been diligently managing different types of credit can be beneficial to your CIBIL score.
  • Every application for credit initiates a hard inquiry from lenders which can temporarily lower your score. Make sure not to apply for multiple credit options too closely.
  • Errors in your CIBIL report may also be the cause of a lower CIBIL score. Monitor your report regularly and immediately raise a dispute with CIBIL if you find any inaccuracies.

What is a CIBIL Report?

A CIBIL report records your credit history in detail. It will typically include -

  • Your CIBIL score
  • Personal and contact information
  • Employment details
  • Credit card details and loan account information
  • Information on any credit inquiries

Unlike a CIBIL score, the CIBIL report encompasses the last 36 months or 3 years of your credit history.

Components of a CIBIL Report

Let us look at the components of a CIBIL report mentioned in the above section in more detail -

  • CIBIL score: Your CIBIL score is within the range of 300 to 900. If you do not have enough credit history to warrant a score, or if your credit has been inactive for the last couple of years, this section may reflect “NA” or “NH”.
  • Personal details: These include your name, date of birth, and gender as reported to CIBIL. Details such as your PAN, voter ID, and passport number can also be found here.
  • Contact information: This section lists your telephone number, email address, and postal address (residential, temporary, permanent, or official). It can have up to 4 addresses and email addresses.
  • Employment details: You will find details of your occupation and income if provided by the lender, at the time of opening a credit facility.
  • Account information: All the details about your loan and credit card accounts can be found here. They include the opening date of each account, whether or not it is jointly held, the last payment, whether any amount is overdue, and the current balance. It will have a month-on-month record of up to 36 months of your payment history.
  • Credit inquiries: These are the details of each time an inquiry was made by a lender for your credit applications. The information includes the lender’s name, the type of loan, and the date of application.

How do Lenders use CIBIL Reports to assess credit risk?

Both CIBIL reports and CIBIL scores are valuable for lenders to assess your creditworthiness and personal loan eligibility. In general, credit scores of 750 and above are viewed favorably by lending institutions. However, if you have no credit history or your CIBIL score has dropped due to a valid reason such as a medical emergency, the CIBIL report can help you out. It will give lenders a larger and detailed view of your credit history, including the dates of any outstanding payments. An otherwise reliable record of payments and good credit behaviour can help the lender view your application more favourably.

What Information is Available in the CIBIL Report?

A CIBIL report contains all the information that can help lending institutions determine how creditworthy you are. This includes both your personal details and debt-related information. The personal section can include everything from your name, telephone number, and addresses to your PAN and passport number. The debt section contains information on your open debt accounts, any loans you might have taken out in the past, whether you have repaid them on time, any outstanding debt, and so on.

Difference Between the CIBIL Score and Credit Score

Both a CIBIL score and a credit score are a 3-digit numeric summary of your creditworthiness. The key difference is that the CIBIL score is provided by Credit Information Bureau India Limited, one of the 4 major credit bureaus in India. A credit score is a term used to describe the score generated by the other credit bureaus – Equifax, CRIF Highmark, and Experian. While the scores generated by all 4 companies are valid, lending institutions typically prefer the CIBIL score.

Feature

CIBIL Score

Credit Score

Provided by

CIBIL TransUnion

Various credit bureaus (Equifax, CRIF Highmark, or Experian)

Range

300 - 900

May vary slightly from bureau to bureau

Major affecting factors

Payment history, credit utlisation ratio, credit mix, multiple inquiries

Other factors may be considered depending on the bureau

Availability of free reports

Available for free once a year

Availability may depend upon the bureau’s specific regulations and location

Valid for assessing creditworthiness?

Yes

Yes

Importance of Maintaining a Good CIBIL Score and Report

A good CIBIL score and report can not only increase your chances of getting a loan approved quicker but can also help you save money in the long run.

Benefits of Having a Good CIBIL Score

Your CIBIL score will have a significant impact on the interest rate you will be offered on loans. A high score can get you lower interest rates, especially if you meet other eligibility requirements and have an existing relationship with the lending institution. Low-interest rates mean that the overall cost of your loan will be lower. Beyond interest rates, you may also get benefits such as a higher loan amount or more flexible repayment options.

Consequences of a Poor CIBIL Score

A poor CIBIL score can significantly reduce your financial opportunities. Lenders may view you as a high-risk borrower or at a higher risk of loan defaults. This either decreases your chances of the loan being approved, or you may have to settle for higher interest rates. The latter means that you will end up paying more over the life of the loan. You may also get shorter loan tenures, leaving you with high monthly EMIs that can increase your financial burden.

Strategies for Improving and Maintaining a Healthy CIBIL Score and Report

Building and maintaining a healthy CIBIL score and report takes time as well as consistent efforts. Here are some ways you can do so -

  • The most important strategy is to make timely payments on EMIs, credit card dues, and any other utility bills. Even a single missed payment can negatively impact your CIBIL score.
  • Try to keep your credit utilisation ratio below 30% as it indicates responsible credit management.
  • Try to maintain a good mix of credit such as secured loans (car loans), unsecured personal loans, credit cards, etc.
  • Borrow only what you need and avoid maxing out on credit cards frequently. Do not make multiple credit applications in a short span.
  • Check your CIBIL score and report regularly for any errors and raise a dispute for any discrepancy that might be hurting your CIBIL score.

Tips for Monitoring and Managing your CIBIL Score and Report

Actively monitoring your CIBIL report and score will help you catch any drop in the score early and take prompt action to resolve the issue.

  • You can access your CIBIL report online on the CIBIL website. It is recommended to check the report every 3 to 6 months, especially if you want to apply for credit in the near future. At the minimum, you should check the report once a year.
  • Check every section for errors. If you find any, immediately raise a dispute with CIBIL to get them corrected. Doing so can help improve your CIBIL score.
  • Learn the different factors that affect your CIBIL score, such as repayment history, credit utilisation, the amount of credit application, etc. Take targeted action to stay on top of these factors and adopt responsible credit behaviour.

Steps to Obtain a Free CIBIL Report

CIBIL lets you check your report for free once a year. Here’s how you can do it -

  • Visit the official CIBIL website.
  • If you have a member login, go to the ‘My Account’ tab and click on the ‘Get your Free Report’ link.
  • If you are not a member, please register with details like your name and email address, and set a password.
  • You’ll have to verify your identity through a One-Time Password (OTP) sent to your registered mobile number.
  • Once your number has been verified, you can access your detailed CIBIL report.

Several financial institutions in India also let you access CIBIL reports for free through their website or mobile applications. You may have to register on their platform and follow a similar process to get your CIBIL report.

How to Interpret and Analyze your CIBIL Report?

We have seen the different components included in a CIBIL report - the CIBIL score, personal, contact, and employment information, account details, and inquiry information. Carefully go through the personal, contact, and employment details for any inaccuracies. If your CIBIL score is less than 750, here is what you should pay attention to -

Account Information

  • Look for any errors related to your payment history. Raise a dispute with CIBIL if you find any.
  • If you find any late payments or defaults, consider how you can avoid them in the future.
  • Set up automatic payments to avoid missed payments due to forgetfulness, as long as you take care to maintain sufficient funds in the account. Insufficient funds may lead to overdraft charges.

Inquiry Information

Numerous inquiries in a short period of time may have lowered your CIBIL score. Take care not to apply for too much credit at once to avoid this.

Must Read:What Is a Credit History?

Conclusion

Understanding CIBIL reports and CIBIL scores is crucial for building a healthy financial future. A good CIBIL score and report can increase your chances of loan approval with low-interest rates. Conversely, a poor score and report increase the likelihood of loan rejection or the loan may come with higher interest rates, increasing the borrowing cost. Responsible practices like timely payments on all dues, maintaining a credit utilisation ratio of less than 30%, keeping a diverse credit mix, and regularly checking CIBIL reports for errors will help you maintain a high CIBIL score.

At SMFG India Credit, the minimum CIBIL score to apply for a personal loan is 750. We offer low-interest rates starting from 11.99% per annum* for eligible borrowers. Our online application process requires minimal documentation so that you get the funds you require as smoothly as possible. Before applying, you can check our online personal eligibility calculator to get an estimate of the maximum loan amount you may be able to borrow.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

FAQs

Are the credit score and the CIBIL score the same?

CIBIL score and credit score are similar, but not the same. Both are a 3-digit numeric summary of your creditworthiness. Credit scores can be generated by any of the 4 major credit bureaus in India - IBIL, Equifax, CRIF Highmark, and Experian. A CIBIL score is a credit score generated specifically by CIBIL. While credit scores generated by all 4 companies are valid, financial institutions usually give preference to a CIBIL score.

What is a good credit score?

A credit or CIBIL score of 700 to 749 is usually considered ‘good’, while a score of 750 to 900 is considered to be excellent. Please note that different lenders may have different scales for good or excellent credit scores.

How to get a 900 credit score?

900 is the highest possible credit score in India. Reaching the same will require consistent efforts and time. Here are some tips to reach 900 -

  • Repay all credit card dues, EMIs, and utility bills on time.
  • Limit your credit utilisation, aim to keep the credit utilisation ratio below 30%
  • Go for a diverse credit mix such as personal loans, car loans, credit cards, etc., to show responsible management of different credit types.
  • Avoid multiple credit applications in a short amount of time as every hard inquiry can temporarily lower your score.
  • Keep old credit accounts open to show a longer and more responsible credit history.

Does the CIBIL score increase every month?

Not necessarily. It can take up to 4 to 12 months for your CIBIL score to show improvement, depending on how consistently you practice good credit behaviour.

How many types of CIBIL reports are there?

There can be 2 types of CIBIL reports - consumer CIBIL and commercial CIBIL. The former reflects the creditworthiness of an individual while the latter does the same for a business or a commercial entity.

What is the full form of the CIBIL score?

CIBIL stands for Credit Information Bureau (India) Limited. It is one of the leading credit information companies in India. A CIBIL score refers to the credit score generated by CIBIL.

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