CIBIL score is now something that you cannot do without while seeking a loan. Everyone needs a loan and your CIBIL score is checked when your loan application is processed.
Many people have the impression that CIBIL score is meant to deny them a loan, but the reality is just the opposite. The score helps make the sanctioning of the loan easy and smooth.
M V Nair, Chairman of CIBIL, explains how score came into being and the way it has simplified the processing of loans.
What is CIBIL?
There was no transparency in granting loans by banks till 10 years ago. Suppose a person avails a loan from Kochi and fails to repay it. He goes to another city, conceals the fact that he is a defaulter and gets another loan. He deliberately fails to repay this loan too. Such incidents were not uncommon, which made loans costly.
With the introduction of CIBIL, things became easy. CIBIL made all details regarding the loan available at the fingertips. Banks now sanction loans based on the CIBIL score. A person having a high score will get a loan easily. CIBIL is now an address that helps a loan seeker get the amount he requires at a cheap rate and fast.
How can a loan be availed easily?
A loan has become an integral part of our daily lives. It enables people to lead comfortable lives. But for easily obtaining it, some factors need to be remembered. Firstly, the CIBIL score should be high. Secondly, the repayment of an existing loan has to be prompt. Another aspect is availing loans that you cannot afford to repay. When a person maintains a good CIBIL score he can ensure availability of loan to realize all important needs like a house, vehicle and wedding. However, when repayment is erratic, obtaining further credit will not be an easy task.
What is the purpose of maintaining the CIBIL score?
CIBIL was launched in the year 2004. Initially, it acted as a consumer bureau. But from 2011, the score was made available. Over the last nine years, the growth of loans sanctioned has been significant.
CIBIL score ranges between 300 and 900. If your score is above 800, loans will be available at cheap rates easily. Banks will be eager to sanction credit for such people. The CIBIL score of all bank customers are now available and it is updated at an interval of a week to 40 days. Soon, real-time updation will come into force.
What all factors influence the score?
The loan amount should depend on a person’s income and his requirement of money. CIBIL score indicates the person’s capacity to repay the loan. When default on loan repayment takes place, the score will fall. When several loans are availed at the same time the score is influenced. Making enquiries with a number of banks for credit cards gives the impression that a person is desperately in need of money. The financial discipline of a person who has availed a loan will also be taken into account for deciding his score.
How can a person improve the score?
If the score is above 800, banks will offer good interest rates. It should be ensured that there is no default on a loan. That would help avail more loans. When different types of loans – those having collateral and others lacking it – are availed, the score rises. Though repayment at regular intervals improves the score, premature closure of the loan does not help increase it. When a loan is availed to repay another loan, the CIBIL score falls.
How is the score of a person who has not availed a loan calculated?
A person who has not been granted a loan will have no score. Some banks do not sanction loans to people who don’t have a CIBIL score. So, it is always better to avail a small credit card or other loan to create a score.
What can be done if the score falls drastically?
Exercise financial discipline for six months. Pay instalments promptly. Meanwhile, avoid making enquires with several banks regarding loans. Instead, seek a loan with collateral which would improve the score. In other words, a person having a score of 700 could improve it by availing a loan with collateral. The scores are monitored by banks regularly. A person having a score of 600 can see it rising to 700 if he makes prompt repayments. However, if somebody having a score of 850 engages in activities that lead the score to come down to 750, he will be kept under observation by banks. People having a good loan track record can expect to be granted more loans easily.
What is the status of educational loans?
A study loan has become unavoidable these days. But many people have developed a feeling that it need not be repaid. When a young person does this, it affects his or her CIBIL score. A person having low CIBIL score may not even be able to obtain a credit card, which has become a part and parcel of our lives. Moreover, many institutions consider the CIBIL score of a candidate to decide whether to employ him/her or not.