Why Is Your Cibil Score Important?

When you approach a bank to fund your home purchase, you are often puzzled because a bank executive starts probing your credit score before proceeding. You may not have given it much thought, but your punctuality in paying your bills – credit card bills, equated monthly instalments (EMIs) for your automobile loan, and many other such liabilities – has a bearing on whether a bank approves or rejects your loan.

PropGuide tells you how financial institutions evaluate your credit score and things that you must do to keep your rating high.

What is Cibil?

The Credit Information Bureau (India) Limited, or Cibil, is an agency that provides the credit score and report on an individual's payments pertaining to loans and credit cards. In other words, it's a record of how you treated your liabilities. Your Cibil score shows your creditworthiness and indicates the probability of a default on the basis of your credit history.

How does Cibil get these records?

Cibil sources all your credit information from leading banks and other financial institutions. These data keep getting updated from time to time.

How to interpret your score?

Before giving you a rating, Cibil takes these factors into account:

• Your closed accounts: The status of all repaid loans falls in this category.

• Settled accounts: When you make a partial payment against your outstanding loan, with the lender's consent, it is known as a settled account.

• Written-off accounts: When a loan remains unpaid for more than 180 days, it is considered written off. This affects your credit eligibility negatively.

• Days past due (DPDs): It reflects the number of days by which there was a delay in the payment of a loan, again a factor that affects your rating.

• Enquiry: An enquiry is the number of times you applied for a loan. Multiple enquiries reflect your high appetite for credit.

• High credit: This shows the highest amount which is ever billed on your credit card.

• Other information: Details like your past and current residential and office addresses, opening and closing dates of loans, the ownership status (single/ joint/guarantor), the liability type (loan/credit card) also form an important part of your credit report.

What kind of scores do you see on your credit report?

700+ (No-risk zone): A score above 700 is considered good and helps you secure a loan easily.

600-700 (Less-risky zone): A score in this range will help you borrow from lenders. However, to ascertain your creditworthiness, banks will check various other factors like sources of income other than your regular one, the stability of your job, etc.

300-600 (Risky zone): A score between this range is considered risky by banks and they refrain from funding people in this category.

1-5: This range reflects under six months of credit history.

-1: This credit score reflects there is no credit history.

How to score high?

Follow these steps to keep your Cibil score high:

• Pay your EMIs on time

• Pay your credit card bills in full on time, rather than making a due payment every time

• Be a guarantor for only those people whom you consider creditworthy

• Utilise the credit limit efficiently

• Maintain a safe appetite for loans

• Maintain good financial records

What may drag your score down?

Avoid the following to maintain a high credit score:

• Cheque bounces

• Delay in loan repayments

• Defaulting as a guarantor

• Over-shooting credit limit

• Errors in record by banks

• Excessive credit enquiries

With inputs from Parul Pandey