I Principles and Practices of Banking

Topic No:3

CIBIL By
K. Rakshit (001)
C. Hemang (028)
Ch. Sai Saahith (030)
P. Hanu Rohan (046)
M. Naveen (055)
P. Bhavesh (167)
G. S. Vikram (312)
 What is
II

CIBIL?
CIBIL, i.e., Credit Information Bureau (India) Ltd is an authorized credit agency by the Reserve
Bank of India that can calculate the credit score of an individual. The CIBIL meaning is basically
a measurement of your creditworthiness by assigning you a CIBIL score which is a numeric
summary used by financial institutions, be it for a loan, advance or credit card application.
CIBIL has over 5,000 members-including all leading banks, financial institutions, non-banking
financial companies and housing finance companies-and maintain credit records of over 1000
million individuals and businesses.
III
What is a CIBIL
score?
CIBIL score is a 3 digit number that appears on your credit report. The usual range is between 300 and
900, where 300 is the lowest and 900 is the highest. Generally, a score between 700 and 749 is
considered good. Having said that, anything over 750 is deemed to be excellent and increases your
chances of getting your loan approved. The score itself is dynamic in nature and keeps changing
depending on your financial activity.

The CIBIL score is not limited to banks alone to understand of you as a creditworthy applicant. Credit
card companies, mortgage lenders, auto lenders, etc. also use it as a snapshot of your creditworthiness
prior to approving any credit request.
 CIBIL Report IV

For any lender, the CIBIL report is an important document to look into,
before approving a loan application. The CIBIL report consists of the
borrower’s CIBIL score, credit history, repayment history, personal
information, employment details, bank account details, contact
information and hard inquiry information.
By analyzing the CIBIL report, a lender determines whether the
borrower is creditworthy or not and formulates the terms and conditions
of the loan.

CIBIL report is generated by the company TransUnion CIBIL, a credit

bureau, based on the information provided by various lending
institutions from where you have taken a loan, including credit card
transactions. The lending institutions provide data to TransUnion CIBIL
at a regular interval of every 30-45 days.
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How CIBIL score is calculated?
Your CIBIL score is made up of four factors and each of them has a weightage.
• Payment History-30%
• Credit Exposure-25%
• Credit Type and Duration-25%
• Other Factors-20%

Payment History
Payment history is one of the biggest factors that affect in a positive or negative way. If you pay your credit card bills and
EMIs on time, it will boost your score, And if you delay or miss payments, it will reduce your score. Hence, such
payment behavior should be avoided to keep your score high. A CIBIL analysis reported by the Financial Express
revealed that a 30-day delinquency can reduce your CIBIL score by 100 points.

Credit Exposure
Credit Exposure is the second biggest factor that affects the CIBIL score. Credit utilization ratio is the amount of credit
used by you in proportion to your available credit limit. A high credit utilization ratio suggests you are credit hungry and
are struggling with your finances. As a result of heavy credit usage of your credit cards, lenders could think that you are
at a high risk of turning into a defaulter, leading to subsequent application rejection.
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How CIBIL score is calculated?
Credit Type and Duration

Having a long credit history suggests that you have experience in handling credit. Therefore, it is
advised to start building credit history at an early stage as it comes in handy when you are planning to
buy a house or car in the future, requiring high loan amounts.

The type of credit is also considered while calculating your CIBIL score. It is important to maintain a
healthy balance of secured loans as well as unsecured loans. When you have both secured and
unsecured credit in your credit report, it suggests that you have good experience in handling both types
of credit.

Other Factors

Another factor that is a part of your CIBIL score is hard inquiries. When you apply for credit such as a
loan or a credit card, lenders pull out your CIBIL report from the credit bureau. Such an inquiry is
called a hard inquiry and multiple such inquiries will have a negative effect on your score. You should
avoid applying for multiple lines of credit at the same time.
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I
What CIBIL score
numbers mean?
300-550
This means that you have a lot of
defaults like delinquencies, write-
offs, and also, overleverage. You
will find it difficult to get a loan.
700-750
This means you have a great track
record of making payments on time.
However, the banks will conduct
some more credit analysis before
giving a loan or a credit card.
550-700
This would mean that you have a
few irregularities with past
payments. Banks may think that it is
a little risky to give you a loan.
750-900
This shows that you have an
exemplary credit history. It is easier
to get loans and credit cards with a
credit score within this range. It also
means you have a consistency of
frequent and timely repayments.
VIII Use credit responsibly
You have to repay the amount borrowed to
your lender, with or without interest,
depending on type of credit line and your
repayment behaviour. Use your credit card,
loan amount or any type of borrowing wisely.

How to improve
your CIBIL Avoid late or missed payments

score?
Apart from being charged late payment fees,
the repayment behaviour will also get
reported to the credit bureaus and affect your
score. It is advised to set payment reminders
for your loan EMIs and credit card payments
to get more organized.
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How to
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Review your credit report

improve your
You should check your credit report
periodically to understand your credit
health. This should be done to ensure that
your credit report is free of any errors

CIBIL score? related to your credit accounts.

Make sure to close accounts Maintain a low credit utilization ratio

If you have defaulted on any payments in the past, it will
be reflected in your credit history and will bring your
CIBIL score down. Make sure to pay off the unpaid
amounts and close the account instead of opting for the
settlement. You should ensure that the account gets a
‘closed’ status.
You should not exceed 30% of your total
credit limit. This is especially important if
you apply for a home loan. When you
apply for a loan, the banks will assess DTI
ratio. If your debt exceeds 50% of your
income, banks are more likely to reject
your application.
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Thank You

GIM

Principles and Practices of Banking, GIM