What Is CIBIL score And How Is It Related To Credit Report?

If you are looking for a loan or checking eligibility requirements, it is possible you would have encountered something called the CIBIL credit score. It has become a common terminology amongst experienced borrowers who suggest you check your credit score before applying for a loan. Thus, it has become extremely significant to extract a CIBIL score during the process of borrowing. It is a relatively fresh concept in the mainstream market; therefore, it is reasonable to get confused. Don’t worry, here is everything you need to know about CIBIL, credit score, and their relevance.

A credit score is a mathematical and statistical evaluation of a customer’s credit-worthiness based on his/her credit history. A credit score demarcates a probable period by which the customer can repay the amount borrowed. The range of credit score is set from 300 to 900 wherein the higher the score is, the more financially credible a person is considered to be.

CIBIL, which stands for Credit Information Bureau (India) Limited, is often used interchangeably with the term credit score. This is because it is the cardinal Credit Bureau that produces this score. CIBIL, now known as TransUnion CIBIL Ltd., was established in August 2000 with its headquarters in Mumbai. Therefore, making it the oldest credit information company in India. Regardless of being a commercial firm, its functions are based on the license granted by the Reserve Bank of India. Additionally, it follows the Credit Information Act (2005) according to which it records repayment of loans and credit cards by individuals and companies. As soon as you apply for credit, CIBIL gets access and records your information, which includes updates by lenders like banks, NBFCs, or credit card companies every month.

Further, this information accumulated by CIBIL is used to create a Credit Information Report (CIR). A CIR or credit report is a statement that stores your financial data ranging from your credit activity to your current credit situation. It includes your credit history from lending to borrowing, on-going loans, credit card dues, types of accounts, inquiry information, and so on. Along with it, a credit report contains information on bankruptcies, if any. This sophisticated formulation can be quickly done online by downloading a CIR from the CIBIL website. It will not only help you become self-aware but also to become an informed investor. This can be done through the reporting mechanism provision by CIBIL wherein you can report errors, if any, to correct your report before you apply for credit.

In daily life, insurance companies might also use this credit report to ensure you meet their repayment demands. On the other hand, businesses like internet connection, TV-cable connection, cell phone service, and even landowners might look at your credit report before offering you the facilities.

In addition to a detailed credit report, CIBIL provides you with your credit score mentioned above. Credit scores aren’t only limited to individuals but also corporates based on their credit history as well. It should be noted that the CIBIL credit score does not remain stagnant. That is, it keeps on changing based on your credit behavior and other credit transactions. If a loan borrowed by you in the past was paid late or at irregular EMI’s, it is expected that your credit score will be lower. Similarly, paying the due credits on time can help you improve and increase your credit score.

So, the question that arises here is why you should care so much about CIBIL credit score? As explained, it directly proportionates to a massive impact on your credit report. This report has information which is accessed by lenders before issuing the credit. These lenders also provide CIBIL with your credit-related information in turn. This credit score is used as a judgment criterion that deicides your credibility. They not only check your repayment history but evaluate your borrowing capacity and repayment strength.

It is advised to check your CIBIL credit score before applying for any credit, whether its a mere credit card or a big loan. Through this, you can ensure the stability or increase in your credit score. A high credit score is thus much integral to your ability to take out credit.