How can CIBIL Score Affect your Savings?

In the financial world today, a person with the ability to borrow money and with a healthy credit score is considered to be accomplished and successful. Most people who are financially inclined know about the need for a healthy credit score. Though everyone reviews their credit reports, there are very few people who understand this game or know the ways of improve CIBIL score.

Difference between Credit Score and Credit Report

There is a vast difference between credit score and credit report. Credit report is a file which contains the details of a person and his credit history. It consists of all the information about the person along with summarized account of his financial statements. The credit score is the CIBIL rating of a person which along with the cibil report is used by the lenders to decide whether it is safe to give a loan to a person or not. In the financial world, a higher credit score is considered to be beneficial. When a person applies for a loan, the lender uses the credit rating of the person to decide the amount that can be loaned and the rate of interest. Credit score is directly proportional to the loan amount and inversely proportional to the interest rate.

Factors that determine Credit Score

The five factors that are crucial in determining the credit score of a person are discussed below:

  • History of Payment – The payment history of a person i.e. whether he pays his bills on time determines 35% of a person’s CIBIL rating.

  • Amount Owed – A person should always try to use less than 30% of the credit that is available on his cards to keep his credit score healthy.

  • Term of Credit History – A person should try to start building on his credits as early as possible as this contributes to 15% of the credit score.

  • New Credit – This determines 10% of the credit score and includes the new accounts that has been opened by the person or the credit enquiries that he might have made.

  • Types of Credits – This includes all the loans and credits that are being used by a person like mortgage, car loans or credit cards. This determines 10% of the credit score.

A credit score of above 700 is considered to be healthy and lenders actually compete to get business from such people. On the other hand, people who have a credit score of 620 or less are considered to be risky by the lenders.

How a good Credit Score helps in saving Money

A person who has a good CIBIL rating can actually save lots of money when he borrows money. Discussed below are a few instances where a high credit score can help a person in saving money:

  • Low Interest Rates: A person who has a higher credit score is eligible for lower interest rates on the loans that he borrows. This hold true for all the loans be it car loan, home loan or credit cards. This helps the person to save money that he would otherwise have paid as interest.

  • Insurance: The insurance companies check the CIBIL ratings of a person before deciding whether to cover his home and car or not. A higher credit score also ensures that the person gets an insurance coverage at a lower premium.

  • Lower or no Deposits: Any person with a lower credit score would also get benefits from various companies as they would lower the deposits that they charge or even waive them off. These companies would also provide better plans to the customers who have a better credit score.

Thus having a higher CIBIL rating is always beneficial as it gives a person an upper hand in the financial world and helps him save money.

How often should you check your credit score?

One may not need the credit or loans at all times, but it is prudent to keep track of your credit score regularly. If you find anything out of the ordinary, it would be wise to report it to the concerned lender immediately, and have it rectified.

As a consumer, you should be aware of your credit history, as any small error can play havoc with your score. Make sure that the information captured in your report is accurate and up-to-date, ideally checking at least once a year.

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When should you check your credit score?

There are four credit bureaus in India licensed to operate by the RBI. You can apply for a report to any (or all) of the bureaus, and check the scores across each.

A good strategy is to spread out your report requests throughout the year, instead of getting them from each bureau at the same time. That way, you would be able to keep track of your score year-round.

You may want to check your report additionally if you are planning to avail of a new line of credit – a loan or a credit card – as the score plays a critical role in the approval process. A good score can ensure you get a loan on the best possible interest rates and terms.

Alternately, it would suffice to request for a report from the bureau once a year. Checking your personal credit history as often as you like does not impact your score.

How to get a free credit score?

While the bureaus themselves do not offer a free credit report to consumers, you can log on to freescoreindia.com, for a free credit score from Equifax, one of the bureaus in the country today.

To summarise, while a free credit report is not available currently, spending a relatively modest sum to know that your financial information is correct is well worth it. Know your credit score and earn yourself some well-deserved peace of mind.

What is better for CIBIL score- Credit Cards or Personal loans?

Credit cards and personal loans are the two most popular types of unsecured debts available out there in the market. While a personal loan is a good way to finance lump sum for your monetary needs like buying a vacation or your favourite gadgets, credit card is more of an ongoing business of taking credit every month and paying it back before due date. It is important to note that both have a due date or EMI / bill payment which should not be missed.

Personal loans are considered the most expensive forms of loans, and yet their interest rates are lower than those of credit cards. The interest rates of personal loans become applicable right from day one, as soon as money is disbursed. It is a short term loan that requires minimum documentation, and once the money is disbursed no-one questions how the borrower has spent it. Thus, a personal loan is a good way to improve CIBIL score if it is low. A borrower can take loan and ensure that he/she pays all the EMIs on time and closes the loan as per agreement. This will create a positive effect on the credit report. The disadvantage of personal loan is that, if the borrower is not able to pay EMI as per schedule it immediately reports as a default in the CIBIL report. This has grave negative consequences. Also in case the borrower is not able to pay the personal loan in full, and goes for a loan settlement, this reduces the credit score. Thus, while a personal loan is a great instrument to get quick finance, it is a two-edged sword that can make or break your credit history.

A credit card on the other hand is an ongoing credit instrument, the biggest benefit being that if you plan your expenses properly according to your billing cycle, you have almost 30-40 days of interest free period wherein to make the payment and pay only the amount that you actually spent. Many credit cards today also offer the facility to convert any big purchase in monthly EMIs for a small charge. Thus it is a suitable credit instrument for person with monthly source of income. All credit cards offer a facility of minimum payment due. If you pay the minimum amount due, it does not show as a default or missed payment in the credit history. But this is actually a trap, because by paying only the minimum due amount, you end up starting interest levy on the outstanding amount immediately. This interest is cumulated on daily basis and can be very high (as high as 35-40%). Thus in the next bill you receive an exorbitant bill amount which may be further beyond your capacity to pay.

Thus, both personal loan and credit card can affect your CIBIL report in positive and negative ways. It depends on the financial needs and financial capacity of individual borrower to take what suits them.

Can I Get Free Credit Scores in India?

Curious about your credit? Applying for a new loan to buy that dream house? The first thing to do would be to check your credit score, as it is an integral part of the credit report, a document that every lender scrutinises prior to approving a loan application.

CIBIL, Equifax, Experian and CRIF High Mark are the four credit bureaus or credit information companies licensed to operate by the RBI in India. Currently, none of these offer free individual credit reports. However, you can purchase your report on submission of basic documentation and payment of a nominal fee.

If you want to check your score for free, there is now an option to do so. In conjunction with Equifax (one of the said bureaus) Freescoreindia.com does offer this service. You can obtain your score by following a very simple process.

How to get your free credit score:

1. Log on to http://www.freescoreindia.com.

2. Click on ‘Check your free credit score’.

3. Fill in a simple online application form.

Provide information such as your name, email address, the city you are located in, and phone number.
The reason for requirement of the credit score has also to be mentioned.

4. Once done, click on the ‘Submit’ button.

5. On submission of all the required details and documents, your credit score will be updated to your online account (registered with Freescoreindia.com) within 72 hours.

6. You will receive notification via email and SMS regarding the same.

7. You can now login and check your score.

With this quick and easy service, getting a free credit score in India is indeed a reality!

It’s time to know more about your CIBIL Score

A credit report (of which the score is an integral part) is the first document that a lender refers to when scrutinising an application for a loan or credit card. It helps them gauge whether it would be risky or otherwise, extending credit to that particular customer. Having a good credit history is important, and therefore as an extension, it is equally important to know more about your score.

CIBIL is the only credit bureau in India – This is one of the first questions that are asked: are there any other credit bureaus (or credit information companies) apart from CIBIL? The answer is yes – there are four bureaus operational in the country today, namely CIBIL, Equifax, Experian and CRIF High Mark. Owing to the fact that CIBIL is the oldest bureau, it is interchangeably used as a term to define bureaus.

Of course, while each bureau has its own scoring pattern for credit reports (typically ranging between 300 and 900), the basic logic is the same. Each of them uses a set of information to derive the score through analytics.

Closing a bad account does not erase it – Let us say a consumer has defaulted on a loan in the past, or made repeated late payments. Even if subsequently the entire loan has been paid off, remember that the information does not get wiped off your report. While an old ‘good’ or ‘bad’ account may be closed following complete outstanding payment, detailed payment history stays as-is on the credit report.

It is therefore a good practice to make sure any loan outstanding is paid on time, to avoid any blemish on your report, and consequently translating into a low or a poor score.

A poor score means no loan – It is true that the higher your score, the better are your chances of a loan or credit card application getting approved. Further, it also helps to get debt at the most competitive terms and interest rates. However, do keep in mind that a credit score is not the only deciding factor – other information such as your income, other current outstanding etc. also play an important role.

Hence, while a low or poor score may get you a loan, you may wind up paying more by way of interest. It is also possible that while you for example applied for a home loan of Rs. 1.0 crore, a lender would approve a loan of a lower amount. It is therefore important to build up your score.

Repairing a low score is impossible – At the initial stages, the very idea of repairing a low score seems impossible. However, this is not so – with persistence and financial diligence it is indeed possible to not only better your score, but maintain it as such. If you do not want to travel this path alone, it may be a prudent decision to avail of the services of a credit health monitoring company, wherein you would be guided at length as to how to build your score from the ground up.

Do remember therefore that help is always at hand, and you can (successfully) attempt to improve your cibil score.

Checking your own score brings it down – In order to track your credit history, you would need to obtain a copy of your credit report. It is a good practice to check your report annually or additionally if you’re applying for a fresh line of credit. It is commonly believed that checking your score can bring it down; however rest assured it is not so. This practice in fact helps you monitor your score and stay financially healthy.

Purchasing a credit report is expensive – None of the bureaus currently offer free scores to a consumer; they are available for purchase on payment of a small fee and on providing basic documentation.

Alternately, Freescoreindia.com offers a free score from Equifax, one of the bureaus. You can avail of this service by logging on to the website and following a simple hassle-free process.

Social media and credit scores – With the advent of social media, there is a new concept by which your presence on social media networks such as Facebook and Twitter can help assess your credit score. As per a recent update, companies are exploring new ways to gauge the creditworthiness of consumers by understanding their profiles and behaviour on social media.

In places where structured credit scores are not available, this emerging platform may just be a viable alternative for lenders to explore.

The bottom line is, you need stay credit healthy at all times, and knowing more about your score is the first step in the right direction.

Is it necessary to keep a track on CIBIL report?

Keeping a track on your CIBIL report is as important as keeping a track on your physical health condition. While there are four credit bureaus in India, the CIBIL report is the most widely known. It is an important document about your personal financial history that determine your creditworthiness. While maintaining financial discipline and making all your bill payments and EMI payments before due date is an essential way to maintain a good credit score. You should not just assume that doing so will ensure that your credit score is good. There can be multiple reasons why your credit report may still be having a low score or not creating the amount of positive impact that it should.

It is recommended that you should check your CIBIL report regularly. If you are planning to take a loan or any other credit facility soon, checking your credit bureau report becomes imperative.

Why is it important?

  1. Check for any discrepancies in records:
    First and foremost reason to keep a check on your credit report is to detect any wrong information that has got recorded. For example, a credit card company charged you Rs. 3000 for a service without your consent and received this additional amount on your next bill. You raised a complaint with the customer care and meanwhile your due date is approaching. Not to miss payment, you pay the bill (minus Rs.3000) because this amount is disputed. Later on credit company agrees to cancel the service and cancel the Rs.3000 charges. In this case, you assume everything has gone smoothly. But here’s the catch, on your due date, you paid Rs.3000 less than your due amount. This shows up as a partial payment record in your credit report. A couple of more such incidences and can seriously affect your credit score. Such discrepancies can be settled through the dispute resolution mechanism .

  2. Check that all your open and closed accounts reflected correctly:
    Again sometimes credit companies may not be sincere in reporting a closed account (completed loan payments, closed credit cards etc.) Checking your CIBIL report is necessary to track that your accounts are accurately being reported. Also, always remember to take a closure certificate from bank after you close an account.

  3. Detect any frauds or identity thefts:
    Mr.A was surprised to see a credit card account in his credit report which he was totally unaware of. Over and above, it seems only minimum payment due was being payed to avoid raising an alarm till so long as it was possible. It seems someone had used copies of his personal documents to take a credit card in his name and was happily using it. Such frauds are not very commonly heard off, but they are not rare at all. Many people have been duped of their life’s savings because of such identity thefts. Checking a credit report is one way of ensuring that you detect any such suspicious activity as soon as possible.

All that you need to know about your CIBIL report

CIBIL stands for Credit Information Bureau (India) Limited. It was founded in 2000 and as per the recommendations of Siddique Committee. Its key products are Credit Information Report (CIR) and Credit TransUnion Score for individuals and enterprises. Today CIBIL’s CIR and TransUnion Score are one the most widely used parameters in India by Lenders and Banks to determine the credit worthiness of borrowers.
What does a CIBIL Report contain?
The CIBIL Report is a combination of a CIR and Credit TransUnion Score. CIR typically contains history of all credit payments made by an individual (like credit card payments and loan repayments) across different types of credit institutions. It does not record any assets like savings accounts, fixed deposits or any other monetary investment. A CIR typically contains the following information
1. Credit TransUnion Score – This is a 3 – digit score calculated on the basis of the recorded credit payment history. It can range between 300 and 900. A score above 700 is considered good enough.
2. Personal information – This contains your name particulars, and other Identification numbers like PAN card, passport number etc.
3. Contact information – It contains multiple addresses (up to 4) and phone numbers, typically the data you may have submitted to creditors.
4. Employment information –this is monthly income data again based on the information that creditors have provided about you.
5. Account information – This is the most important section as it contains details of all credit accounts like home loan, personal loan, auto loans, overdrafts, credit cards, etc with details like, account number, date opened, monthly payment details, loan amount, last payment, current balance and ownership details.
6. Enquiry information – This is a record of every enquiry request received for your CIR. Typically when you apply for a loan or credit card, the lender company will request for a CIR and such details are recorded here.
How CIBIL Report is generated?
IT is important to note here that all information that is recorded in Credit Information Report is based on the information that CIBIL has received from different credit institutions. Thus while most of the time this information is correct, there are instances when inaccurate reporting by creditors has led to a bad CIBIL Score for individuals without any fault of his/her. This can be addressed through the cibil dispute resolution mechanism.
How to get your CIBIL report?
Any individual can get his/her Credit information report (CIR) and Credit TransUnion Score by submitting an online request form on the CIBIL website (www.CIBIL.com). A nominal charge of Rs. 500/- is charged for this service. IF online submission is not possible, Individuals can also download the form and send the duly signed form with demand draft of Rs. 500/- to get the report. Through the online mode, a person is able to see his/her CIR immediately. If applied offline, or authentication has failed, a KYC form needs to be submitted and the CIR is sent through Speed Post or Express courier within 7 days to the address provided.

How to do a credit check

The term ‘credit’ is synonymous for ‘loans’. A loan is a borrowed sum of money from a bank or a lending institution to fulfill financial goals and meet monetary needs. A credit card is also a type of loan. Usage of loans and credit cards is recorded on a database by banks and credit bureaus, in the form of credit report. A loan applicant may seek their own credit report, or a bank may do a credit score check for a loan application received to assess loan eligibility. This process is known as credit check and involves checking one’s credit report and credit scores.

Online and offline modes for doing a credit check

A credit check can be done via online and offline modes from any one of the four bureaus operational in India, viz CIBIL, Experian, Equifax or Highmark. These bureaus charge a nominal fee to generate credit reports of a loan user. Online mode is usually preferred, because it is paperless, convenient and faster. For the online mode, one must visit the website of the bureau of one’s choice and fill up the details asked under different tabs. There will be a list of documents given, that will indicate proof of identity and proof of residence – one must collect these and upload them online. Thereafter, move along with the instructions given on the web portal, and follow them; close the application by making an online payment for the charges asked by the bureau. The charges for drawing one’s credit report can range from INR 300 to INR 500, depending on the bureau you approach.

The bureaus also list their helpline numbers and email id for assistance in processing your credit score application. Once you close your online process, the bureau will generate your credit report and send a soft copy of the same via electronic mail only to the email id registered by the applicant. For those who are not savvy on the internet and for those who do not have an email id, the bureau will send a hard copy of the credit report to the applicant’s registered residence address.

Freescoreindia.com gives free credit score. The process here is more or less the same, as for a paid report.