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What does your CIBIL Report tell Banks and credit Institutions?

If you have ever applied for a loan or a credit card, chances are that you have come across the term CIBIL Report or CIBIL TransUnion Score. Today in addition to your income and employment, your CIBIL report and score is an integral component of the loan or credit card approval process. Almost no loan or credit card gets sanctioned without checking your CIBIL Report and Score.

Your CIBIL Report is a month-on-month record of your loan or credit card payment history. Your credit score is a numeric indicator of your credit history which reflects your financial and credit health. CIBIL calculates the credit score through advanced analytics and assigns a number between 300 and 900 based on your credit history. The closer your score to 900, the more confidence the credit institution will have in your ability to repay the loan and hence, the better the chances of your application getting approved. While each bank will have its own credit scoring cut-off based on the credit sanctioning policies, it has been observed that most banks are lending to consumers with a CIBIL TransUnion Score of 750 and above.

So ever wondered what exactly does your CIBIL Report tell Banks and why is it so important for the approval of your loan application? To put it simply the information in your CIBIL Report helps banks answer some very crucial questions to help decide on your loan application:

Credit Leverage: Your credit report showcases to the credit institutions your credit exposure.

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How many loans and credit cards have you availed?
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What is the type of credit you have availed – Secured (Home Loans, Car Loans, Loan against Property) and Unsecured (Personal Loan, Credit Card)
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What is the composition of Secured vs. unsecured credit?
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How much is the total amount of credit you have taken?

Credit Behavior: Your CIBIL Report reflects your credit behavior on how you are servicing your loans and credit cards:

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Have you been making payments on your loan EMIs and credit card bills on time?
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If you have defaulted on payments then by how many days? What is the current status of your loan account?
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Have you ever made settlements on your credit card bills?

Credit Appetite: Another crucial question which your credit report helps answer is whether to approve your loan or not and how much credit can you comfortably manage:

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How many loans and credit cards have you availed?
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What is the type of credit you have availed – Secured (Home Loans, Car Loans, Loan against Property) and Unsecured (Personal Loan, Credit Card)
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What is the composition of Secured vs. unsecured credit?
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How much is the total amount of credit you have taken?

By accessing your CIBIL Report and understanding how banks will look at it to decide on your loan application, you will be better prepared to apply for the loan and assure yourself of access to finance. Your CIBIL report and CIBIL TransUnion score not only determines whether or not you qualify for the home loan, but it may also have an impact on the terms and conditions you can avail on the loan. The higher the score, the better may be your chances of availing the loan faster and on favorable terms. So, it is advisable to check your CIBIL Report before applying for a loan.

Here are some do’s and don’ts that you must keep in mind to keep your CIBIL Report and Score on track.

Pay your credit dues on time: Ensure you pay the EMIs on your loans and your credit card bills by the due day every month. Your payment history has a significant impact on your CIBIL TransUnion Score. Regular payments of EMIs and credit card bills will help you build a high credit score and a healthy credit report.

Keep a control on your credit card limits: While increased spending on your credit cards may not necessarily negatively affect your CIBIL TransUnion Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact your score. It’s always prudent to not use too much credit.

Limit credit exposure: The total size of your debt reflects on your credit report and has an impact on your CIBIL TransUnion Score. Having many loans or credit cards increases the total amount of debt you owe and increases your credit exposure. High credit exposure may impact your CIBIL TransUnion Score.  If you have many loans running ensure that you close some of them so that your total credit exposure is reduced, before you apply for new loans.

Maintain a healthy mix of credit: A higher concentration of home loans or auto loans (commonly known as Secured Loans) is likely to be more favorable for your credit score than a large number of unsecured loans. Although unsecured loans offer easy access to finance, it’s also by far the most expensive form of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest

Monitor your co-signed, joint accounts monthly as these also form a part of your credit history and impact your credit score.

Monitor the loan accounts for which you have stood as a ‘guarantor’. It is important to understand that by pledging as a guarantor on the loan, you are also legally responsible towards the timely repayment of the loan. In case of defaults and delinquencies by the principal borrower, the CIBIL TransUnion Score of the guarantor will also get negatively impacted. Hence, it’s imperative that the guarantor on the loan should ensure that the borrower pays the EMIs regularly on the due date, month on month.

Review your CIBIL TransUnion Score and credit history regularly in order to track your financial standing and be “loan ready” always.

By Harshala Chandorkar

Chief Operating Officer, CIBIL

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