India is an incredible country and boasts of a rich ethnic culture. India’s vast population make up a huge market and create vast demands for goods and services. Therefore credit plays such a vital role in our economics. Citibank’s Asia Pacific Global Consumer Group Head Stephen Bird said to a newspaper in 2007, that India’s credit market was in its infancy and that there was a wide scope for expansion. Truly we have moved way ahead since then in the credit world.
Although we have grown in leaps and bounds, yet there are several questions that people are struggling with regarding their credit scores. The purpose of this article is to educate our readers and provide them with answers to questions bubbling in their minds.
Q1) What is CIBIL?
CIBIL stands for Credit Information and Bureau (India) Limited. It was founded in the year 2000. Its primary function is to collect individual and company credit data from its member institutions. Such data on the history of advances taken, credit cards used and any other credit facility availed, is then recorded, updated and maintained by CIBIL in the form of Credit Information Report (CIR). Its authority is limited to updating records as per information received from banks and other financial institutions. It cannot make any changes on its own or at the behest of an individual. The reports are updated on a monthly basis as per information received.
These reports are kept confidential and can be withdrawn only by a borrower for personal introspection or by a prospective lender while assessing a loan application by the customer. Based on this report and using their proprietary formula, a CIBIL score or a credit score is calculated.
A credit score is the summary of your report, numerically represented. This is a three digit number ranging between 300 & 900. The higher this score the better it is. On a general note, any score above 750 is considered a good score and borrowers having this score or more are favoured by lenders. Through this score banks judge your probability of default in future. A lower score would mean a high probability of default while a higher score means lower probability.
Q3) Why should I be worried about my credit score and credit report?
Earlier banks and other lenders would do a manual background check on a prospective borrower. This had a high margin of error and several banks were duped of their money. Thus there was a need felt for an organisation who would maintain past records of repayments on a loan by an individual.
Since the inception of CIBIL, credit scores have become an indispensible part of the loan assessment process. Infact, the first thing lenders do is to withdraw the credit report and analyse. It will not be an overstatement to say that more than 90% of loan applications are approved if the credit score is more than 700.
Now that, your credit score is so vital to the evaluation process, it is obvious that it must mean more than just a number to you. You should be careful about what factors affect it, if you have a lower score then look for ways to improve credit score and maintain it at a decent level so that you don’t have to face an embarrassing situation if you need to apply for a loan in future.
Q4) How can I use a good credit score?
It would be wrong to say that your credit score is what you should fear. Rather, if you are in the elite club and can boast of a good credit score then you can avail debt easily, you may be able to negotiate on terms and take advantage of a lower rate of interest. Banks are always willing to partner with people who are genuine borrowers with a good intent. More than anything they want their money back with interest. That is how their business runs. A higher score will help you build that image.
Q5) Am not happy with my score. Can I raise a dispute?
You can certainly raise a CIBIL dispute if you have spotted errors in your CIR. By raising a dispute you bring to their notice on what needs to be corrected on your report or if you have information which you do not identify. Do bear in mind that there are humans who update thousands of report daily and they may have erred. A clarification is sought from the lender involved and only if the issue is resolved in your favour then the report is updated.
Do note that CIBIL cannot update any information on its own. It is only a “data storage centre” and has no autonomy over the reported data. It entirely depends on information received from banks. The issue raised by you and thereby resolved in your favour, may have a direct or indirect bearing on your score. It may help your score to ascend a few points. However, you cannot raise a dispute if you are not happy with the score itself. You can adopt ways to improve credit score. On our blog we have covered ways on how to enhance your score. Or you could seek an expert’s help for credit repair.
Dealing with credit scores is no rocket science. It does involve expertise in finances but by observing diligence in payments to your creditors and using credit with a firm hand will take you a long way ahead in the credit space.
written by Arun Ramamurthy, author of “Unlock the Power of Your Credit Score” : India’s first book on credit scores