Have you ever approached a bank for loan? Are you planning to approach a bank for loan in the days to come? Please remember whenever you approach a bank for loan, you must have a clean history of credit. What do I mean by clean history? If you have availed any loan in the past, the credit payment history must be clean and there should be no delinquency. Banks and Financial institutions run a report on you before granting a loan to you. This report is known as credit information report. In India, credit information report is run on one of the credit bureaus approved by RBI. As of now, India has four credit bureau i.e. 1) CIBIL, 2) EXPERIAN, 3) EQUIFAX and 4) HIGH MARK. Effectively CIBIL is the bureau which is most widely used.
How do banks use your CIBIL report? When you approach a bank for loan, the concerned bank asks you for certain information like PAN card/passport/voter id/ration card/driving license details, name , date of birth, gender,address and telephone number.Some of the banks may ask for xerox copy of your credit card information as well. Using all these information, a bank runs a report on you in the CIBIL system. The report gives a bank history of all the loans availed by you ( Reported by various financial institutions from time to time).
The report generated by the bank has a critical component called as CIBIL Transunion score. This score gives an insight into probability of a customer defaulting in days to come.There are three score value generated by CIBIL system 1) -1 (Minus 1), 2) Zero and 3) Score range from 300 to 900. Let us understand what these score values communicate. A score of -1 means that a customer has no credit history. This means if a customer has no credit background but his details are available in the CIBIL system the customer gets a score of -1. How can a customer have details in CIBIL system when a customer has not availed loan. This happens when a bank/financial institution makes an inquiry on the customer.There are two exceptions to -1 score. If a customer is an authorized user of a card (Example husband giving an add on card to wife), the customer will get a score of minus 1. Also if a customer has credit history older than 24 months, the score will be -1. This means that all the loans availed by the customer were closed 24 months before the date of reporting of loans by the financial institution.
A customer gets a score of zero, when his credit history is less than six months.In other cases, a customer gets a score between 300 to 900. Please note that higher the score, less is the probability of default. Five broad factors decide the score of a customer:
1) Amount overdue and days past due
2) Credit Mix
3) Utilization of credit
4) Number of Inquiries
5) Age of an individual
Every customer should avoid delayed/non payment of his credit facilities. To improve score , the customer should ensure that he pays on time. There is no ideal score but a score better than 800 is considered good by banks and there is high possibility of loans getting sanctioned,of course subject to certain checks at bank's end.
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