CIBIL Score – An Introduction

What is credit history?

If you would know the value of money, go and try to borrow some. – Benjamin Franklin



Credit history is the information about your past financial behaviour that takes into account the number of outstanding loans you have, the number of credit card(s) you have, your credit repayment behaviour etc. The credit history predicts how likely you are to repay your loan or make timely payments on your credit card. In short, it is an indicator of creditworthiness of the borrower.

There are four Credit Information Companies in India – Credit Information Bureau (India) Limited popularly known as CIBIL, Equifax Credit Information Services Private Limited (ECIS), Experian Credit Information Co, and Highmark Credit Information Services. Among them CIBIL is India’s first and the largest credit information bureau.

Who is CIBIL?

CIBIL, the pioneers in credit information in India, started with a mission of providing data that enables the financial institutions to make informed credit decisions. They collect and maintain a huge database related to big commercials’ as well as individuals’ payments related to loans and credit cards. By collecting, analyzing, and delivering information on credit histories of millions of borrowers, CIBIL serves both credit lenders and consumers.

CIBIL collects this information from its members, which includes all leading banks, financial institutions, non-banking financial companies (NBFCs), housing finance companies, state financial corporations and credit card companies on regular basis and processes the data and provide useful and actionable Credit Information Report (CIR). These reports contain the basic borrower information (such as names, date of births and addresses), past payment history, overdue amounts, records of all the credit facilities availed by the borrower and number of inquiries made on that borrower by different members.  This information becomes very helpful for bankers/lenders and credit card companies to assess the creditworthiness of their prospective customers.

What is CIBIL score?

Life is a game. Money is how we keep score. – Ted Turner

The CIBIL TransUnion Score is a 3 digit numeric summary of your credit history. This number ranges from 300 to 900 and detailed information is given in Credit Information Report (CIR). This score tells lender or credit card company how likely you are to pay back the credit. It shows your past performance in credit usage and loan repayment behaviour. Usually, 700 and more is considered a good score by lenders to provide loans. However, every lender has their own criteria to decide the eligibility for loan sanction and CIBIL does not define any yardstick to decide it.

Nearer you are to a score of 900, the lender will have more confidence in you to sanction a loan. In the beginning CIBIL was providing this information only to banking industry, credit card companies and such financial industry in general. But now it has extended its service to the individuals too. An individual can access his Credit Information Report (CIR) by paying just Rs. 154 and CIBIL TransUnion score by paying Rs. 470.

CIBIL TransUnion Score 2.0

Recently CIBIL has come up with a new version of the credit score – CIBIL TransUnion Score 2.0. This advanced scoring formula ensures risk prediction in a much better way. It predicts risk more powerfully as this scoring model has been “customized for the changing Indian market and consumer behavior,” said Mr. Arun Thukral, Managing Director, CIBIL.

The biggest change here is, it is for new customers i.e., customers with less than 6 months of credit history. Earlier they used to get “0” as score because of credit history of less than 6 months and they were classified under the category of “No History- NH” in the earlier version but now they will get risk index ranging from 1 to 5; here 1 means highest risk and 5 means lowest risk of default. Thus, it will enable the credit institutions to classify the new customers as high, medium and low risk.

How and when the lenders use it?

When a prospective customer applies for a loan or a new credit card, the lender first checks the creditworthiness of the customer from CIBIL. They will continue with credit process only if they are satisfied with the credit information furnished by the CIBIL. However, CIBIL score alone is not the only criteria for rejection or approval of credit facilities and every credit institution has its own rules in this regard.

Credit information rendered by CIBIL provides an useful and reliable source of information to the bankers and credit card companies and minimises the risk of bad debts and loan defaults. It also curbs the fraudulent transactions in housing sector. Now even the insurers and telcos can check the credit history before establishing the business deal. Therefore, it will be difficult for fraudulent loan seekers and habitual credit card defaulters to get away easily.

Better safe than sorry

We strongly advise our readers to check their CIR and CIBIL score once a while to a) know whether your score is within the acceptable range and b) check if there are any errors and discrepancies in the information, provided by the banker/credit card company you are dealing with, which may affect your credit score. As the database maintained by CIBIL is very large, clerical errors may occur on their side as well. So it is good to get that corrected before applying for a loan or new credit card so that you can avoid unpleasant experience of rejection of loan applications.