The first question that is posed against a loan applicant by lenders in today’s world is, “What’s your CIBIL score?” The question often leaves the common man bewildered and bothered as to what the importance of this particular question is. The mental pressure that one deals with at the time of applying for a loan is at a pretty extreme level as it is without having to answer questions that are completely new or foreign. Bearing that in mind, let’s go on a journey of enlightenment about CIBIL and its importance.
1. What is a CIBIL Score?
CIBIL stands for Credit Information Bureau India Limited. All the information with regard to CIBIL scores and the like are stored by TransUnion CIBIL, India’s first credit information company. A CIBIL score is a credit score that is assigned based on a person’s/company’s credit history. The score reflects the creditworthiness and answers questions such as: – How many loans are currently availed? – Have the payments been made on time? – Is there any record of a payment that was missed/ loan that was defaulted on? – What are the repayment history details? – What are the types of credit that have been availed? – What is the length of the credit history?
2. Importance of Obtaining a Good CIBIL Score
The CIBIL score of a person/company is equivalent to its credit footprint. In simple words, at the time of applying for any kind of credit facility, it is imperative that the lenders (banks and financial institutions) are aware of the applicant’s ability to make timely payments and the assurance that they will get their money back. This is done by having a look at the credit history, which is reflected through the CIBIL score. The judgement of creditworthiness is done based on the score obtained by that particular person/company. The CIBIL score ranges between 300 and 900. The higher the score, the better the chances of getting the credit facilities approved. The 3-digit score is derived from the details of loan accounts and credit card facilities availed, the status of payments with respect to each one, the time period left for that particular facility and the like. In order to avail an unsecured business loan, the credit score of that particular person must be over 700, mandatorily. If the application is made for a secured business loan, the credit score could ideally range between 600 and 700. However, if the applicant is not an individual but an entity (partnership firm, LLP, private limited company), the business credit score (CIBIL Rank) and the Company Credit Report (CCR) play a major role apart from the personal credit score in the loan approval process.
3. CIBIL CCR and CIBIL Rank
Companies avail credit facilities in large volumes and on a regular basis. The funds required for day to day operations, the funds required for restructuring or any plans with regard to growth and expansion often fuel the necessity for immediate availability of ready capital.
One of the main reasons behind this is that the company wishes to capitalise on existing opportunities at the earliest and turn it into an extremely favourable situation. At the time of extending such facilities to the companies, the lender has to be aware or be well informed about the company’s creditworthiness, its ability to repay the loan within the stipulated period.
Just as the CIBIL score is a record of an individual’s credit history, the CIBIL CCR is a record of the credit history of a company. CCR stands for Company Credit Report.
The CCR contains the following details: – Details of the borrower – Contact details – Details regarding identification (Company PAN, Company Identification Number) – Delinquencies reported on the borrower – Derogatory information (lawsuits, overdue credit facilities) – Details of outstanding balances – Related party details – Credit Rating Summary – Enquiry Details (made by a particular lender for the company’s credit application) CIBIL Rank is a summary of the Company Credit Report in the form of a single number. The CIBIL Rank ranges between 10 and 1. A rank between 4 to 1 indicates that the chances of getting the credit facilities sanctioned is relatively high. Anything more than 4 is an indication that approval of the loan application may not be as easy. Nevertheless, it is to be noted that the CIBIL Rank is provided only to businesses that have a credit exposure or an outstanding loan of Rs. 10 lakh to Rs. 50 crore.
4. Checking Your CIBIL ScoreThe CIBIL score can be checked at any time on CIBIL’s official website. There are a couple of steps to be followed in order to obtain the CIBIL report:
- An account must be created on the website entering basic details such as username, password and email id.
- Verification of identity has to be done.
- The OTP has to be entered into as and when it is received.
5. Keeping a Good and Healthy CIBIL Score
Firstly, it is important to understand the factors which affect the calculation of the CIBIL score. They are: – Repayment history – Outstanding Balances – The credit period – List of loans applied for and their details – Credit mix (Secured and unsecured loans) Understanding the factors affecting the credit score further helps the person make informed decisions about how to maintain a healthy CIBIL score. A few pointers include: – Purchase of smaller electronic items on EMI basis – Applying for a credit card in the bank where an account exists – Avoid any sort of delay in payments – Avoid taking multiple credit facilities at once – Maintain a good credit mix (have a balance of both secured and unsecured loans) – Verify the CIBIL report so as to eliminate any inaccuracies Applying for a business loan is a very tricky process. What’s trickier is getting that particular loan sanctioned with speed and ease. However, shining the light on something as important as the CIBIL score could go a long way in helping a person or a company secure their financial needs on a faster basis so that the needs are satisfied as and when necessary.