A Credit Information Report (CIR) offers an individual a numeric summary of their credit history. It plays a major role should an individual want to apply for a loan, or a credit card, as all banks and financial institutions run a CIR as part of their loan approval process. It helps lenders to evaluate the potential financial risk prior to sanctioning funds to an individual, and thereby mitigating losses. Not only does a CIR help the financial institution manage their business, but it also helps the individual secure a loan or credit card sooner.
What is a CIBIL score?
A credit score constitutes a part of the CIR. Basis the financial information provided by lenders to Credit Information Companies (CIC), or Credit Bureaus, a score is determined. This score, typically based on a scale of between 300 and 900 points, is what is taken into account by a lender prior to offering credit. With CIBIL for example, a score of 750+ points is considered to be good. For a first time borrower with no previous credit history, a score of -1 is displayed. Different CICs, however, may have different scoring parameters.
While calculating the score, a number of parameters are taken into consideration, including information such as the number and type of previous loan accounts (for example, housing loan, auto loan, credit cards), repayment track record, outstanding debt and the duration of the individual’s credit history.
At times, demographic data such as the individual’s place of residence etc. are factored into the credit score. This is a practice followed by some of the newer credit bureaus, when assigning a score to an individual with no previous credit history.
What is the importance of a CIBIL score?
The credit score indicates creditworthiness of an individual. At the time of applying for credit, a good score helps in availing of a loan or a credit card quicker. It may also determine the rate at which the borrower may choose to lend, and the amount and duration of the loan.
What affects the credit score?
Delinquencies or not repaying existing loans on time can seriously impact an individual’s credit score negatively. At the other end of the spectrum, having no loans or unused credit cards may also affect your score, as this provides no past repayment track record for a borrower to assess your creditworthiness.
How to increase credit score?
Diligence with regards to payment can have a positive impact on your credit score. Ensuring timely payments on existing borrowings, and in full, make for a good score. Having secured loans such as home or auto loans also help boost your score.
It may also be prudent to keep track of your CIR, as any erroneous entry in the same may hamper your score. For example, say your credit report shows a default on a credit card payment. It is likely that the reason for delay was owing to a dispute with the concerned card company, and payment was made in full once the query was sorted. However, in the interim should this have been reported to the credit bureau as a delayed payment, it may have negatively impacted your credit score. Should you find any discrepancies, it may be a good idea to have them rectified by contacting the concerned CIC.
How to check your credit score?
There are four CICs in India today, viz. CIBIL, Equifax, Experian and High Mark.
Currently, none of them offer free CIRs. What you as an individual can do is, log on to the concerned CIC’s website and choose to purchase your CIR for a nominal fee. In addition, the CICs require some basic information in addition to an online request form, including identity proof and address proof of the individual. Making it convenient are various payment options, and the promise to deliver your CIR within a reasonable turn-around-time.
Freescoreindia.com however does offer the option of availing of a free credit score from Equifax, on registration on the website.
Tracking your credit history has never been easier!