In today’s state of high expenses, you may often need to turn to a loan to fulfil your needs and desires, be it your dream house or the much-coveted car that you always wanted to drive. The process of availing a loan involves many steps – an important one being the assessment of your financial status to decide your loan eligibility. For this assessment, a key parameter that banks and lending institutions evaluate is your credit history. This is nothing but a history of your financial transactions and repayments. A good credit history is an indication that you are a trustworthy borrower, and that you will rarely default on your debt repayments. So, you should be aware what your credit rating is and how your various financial decisions affect the credit rating. This starts with finding out your credit score, which is a reflection of your credit worthiness. Here is how you can check your CIBIL score in India.
What is Credit Score?
A credit score or credit rating is a numerical value assigned to the borrower that tells a lender about the credit risk involved in lending to that borrower. There are various standards or models of credit scoring. Some of the private credit scoring models in the US are Vantage Score and FICO. Each of the credit bureaus also generally has their own credit scoring mechanism. Along with the credit score, these entities also generate a Credit Information Report or CIR. This gives an individual’s credit payment history across loan types and credit institutions over a period of time. It is only related to payments history and does not contain savings, or investments information. The report is compiled based on information received from various credit institutions.
Credit Score in India
In India, there are a number of credit scoring companies that put forth their credit ratings. Some of them are CIBIL TransUnion (CIBIL), Experian, Equifax and High Mark. However, the CIBIL Credit Rating by the Credit Information Bureau (India) Limited is the most widely used credit rating referred to by almost all banks or financial lenders to assess a borrower’s status. CIBIL is the first credit information company in India and was established in 2000. The company is the umbrella agency responsible for collection and maintenance of credit records of individuals and commercial establishments. These records include borrowing and payments related to loans and credit cards. CIBIL thus helps standardise the entire lending system in India, by serving as a watch-dog of the credit situation, and promoting fair terms for lenders and buyers alike.
What is a Good CIBIL Score?
The CIBIL Credit Score is a three-digit numeric summary of the credit history which is derived from the Credit Information Report (CIR). It is thus calculated based on the credit records. The CIBIL score range is between 300 to 900, with anything above 750 considered to be a good score. This means that there is a higher probability of lenders approving your loan application if you have a score greater than 750 because they believe that you have the financial means to repay the loan as per timelines and interest rates. This makes you a more credible borrower in the eyes of the lenders, and they will readily lend to you.
How to Find Credit Score in India?
There are a number of ways to get a free CIBIL report. A CIBIL score check can be done directly on the CIBIL website and this is generally free if you check it at a frequency of once a year or less. However, if you want to check it at a greater frequency then you will have to make a small fee payment. Generally, it is easy to check CIBIL score with your PAN number, along with your other basic personal details. Your PAN card number is an essential element because it is your identification that is linked to all your financial transactions. With this single-ID access, all credit bureaus can easily access your details. In case you do not have a PAN card, you can use your ID number on your passport or Voter ID card to access your credit score.
Steps to Check CIBIL Score in India
The easiest way to check credit score for free in India is to go directly to the CIBIL sight.
- Go to the CIBIL official website.
- Go to “Get Your Credit Score” on the top right hand.
- If you wish to seek access on a periodic basis, it is a good idea to avail one of the subscription schemes.
- Enter your personal details like PAN Card number, email id, Date of Birth, Gender.
- Verify the captcha code and make the payment through the payment gateway.
- You can opt for a physical copy of the report to be mailed to your address, or simply sign up for an online copy through email.
CIBIL Score Calculation
There is a process by which CIBIL gathers the credit information and prepares the credit reports. The agency associates with banks and other lenders through a partnership and they together work to create a live status of credit information. Basically, these banks and financial institutions provide data to CIBIL on a monthly basis. Armed with this data, CIBIL then calculates the CIBIL score for individual consumers as well as commercial institutions based on a number of factors. The calculation is not just limited to whether you make timely payments or not. Other factors that affect the CIBIL score negatively are:
- Your record of loan repayment i.e. timelines and amount paid with interest.
- A number of ongoing and parallel loan debts.
- High utilisation of your credit limit.
- Number of years you have in been in debt.
- Your credit mix i.e. secured versus unsecured loans you hold.
- Your position as a guarantor in other loan applications.
- Recency of loans and credit cards.
- Closing down an active credit card.
These are only some of the factors, and it is very difficult to gauge how these factors are weighted to give rise to your credit score.
How Many Credit Score Enquiries Can You Do?
An important element to be aware of is that the number of enquiries into your credit score may impact your credit rating. Basically, there are two types of enquiries: a hard enquiry and soft enquiry.
- Soft Enquiry: An enquiry that you make as an individual consumer is a soft enquiry. It does not affect your credit score in any way. This is logical because you have the right to know your credit status as per the frequency you wish. Ideally, there should be no restrictions on simply enquiring about your score!
- Hard Enquiry: When you apply for a loan to a bank or financial institution, the bank or financial institution will make an enquiry into your credit ratings to assess your loan eligibility. The higher the number of loan or credit applications you make, the higher the number of such enquiries. This may give banks the impression that you are in dire need of a loan. Therefore, you are inquiring so many times. This may appear questionable and may, in turn, reduce your credit rating. Hence it is best to apply for a loan only after a thorough assessment of your credit rating. Apply only when you are sure that there are high chances of your loan being approved. Avoid simply setting out on a loan-application spree just because you are looking for funds.
Why Refer to The Credit Score or CIR?
Financial institutions have their own means of evaluating credit worthiness. But ultimately they rely on the CIBIL score to make lending decisions. Hence, being aware of your credit score beforehand can help you know your chances of getting a loan. It can also help you prepare accordingly before applying for a loan. There is also a possibility that you do not have any credit score, indicated by a status of NA or NH in your credit report. This means that you have no credit history or are new to the credit system and hence have no CIBIL score eligibility. In such a situation, you may need to build your credit history from scratch by intelligently using credit mechanisms like credit cards and adhering to the rules and guidelines to be able to build a good credit score. If you have a low credit score and wish to take a loan in the near future, you may actively need to work towards improving your CIBIL score.
Today we live in the times of data and that data is available at our fingertips. It is up to us to decide to extract that data and put it to proper use. Your CIBIL score in India is a very important instrument for you to make an informed credit decision. Learn how to check credit score, stay on top of your credit score and make the right financial decisions to ensure your financial wellbeing.