In today’s world, expenses are growing considering the choices available and lifestyle that people want to maintain. This leads to borrowing money for buying cars, fancy homes, luxury holidays etc. It is important for keeping a tab on the loan recipients/borrowers. RBI and the Government of India have created CIBIL (Credit Information Bureau India Ltd) for this.
The aim of CIBIL is to gather all existing consumer and commercial credit information such that all data can be pulled whenever required to do a check on a person or organization looking for a loan.
There is a two way mechanism by which CIBIL helps the economy. If a person/organization has a poor track record in repayment, the lender has the option to reject the loan or charge a high interest rate for the loan. On the other hand, with an impeccable record on repayments, the borrower can take advantage of lower interest rates.
Credit Information Report- The Credit Information Report contains information like name, address, loans taken, payment record, overdue payments etc.
Credit Score - The CIBIL score is a measure out of 900. It gives a quantitative sign of an individual’s credit history. The higher the score the better the credit rating and therefore a higher chance to get a loan or get a loan at better interest rates.
The parameters for calculation of the credit score are -delinquency, credit seeking activity, type of credit and demographics
Earlier there was a score of -1 to 0 for people/ organizations that did not have a credit history of greater than 6 months. There is a new development in light of changing behaviour patterns among consumers, Borrowers who have taken credit for the first time in the last six months will be graded on a scale of one to five, where one would mean highest risk and five would mean lowest risk of default. This move will be advantageous for recent borrowers. Earlier there was no differentiation between a person who paid his dues on time and the one who defaulted on his payments. But now there will be a distinction between the two.
Apart from CIBIL, there are three other credit information bureaus operating in India at present – Equifax, Experian and High Mark. But CIBIL has the largest market share as of now.
How to get your credit score?
You can visit CIBIL's website, make the payment and follow instructions. It takes couple of days for the detailed report to be ready. They will intimate you once the report is ready for you to view. Once you have the report, you are ready to apply for a Loan or Credit Card.