Kiran Kumar, 34, was overwhelmed when his loan application to buy an AC was sanctioned in less than 15 minutes. All Kumar had to submit was residence proof and a blank cheque and, voila, he was greeted with an SMS with loan approval details. According to Arun Thukral, MD, Credit Information Bureau India Ltd (CIBIL), this was possible as Kumar’s past credit repayment performance was not only found satisfactory, his records showed he could afford to add to his existing loans.
CIBIL is India’s first credit information bureau, initiated by the State Bank of India and HDFC Ltd. It’s a repository of information about commercial and consumer borrowers by way of credit information reports, a CIBIL Trans Union Score and CIBIL Mortgage Check. “Institutions use it to predict if an applicant will become delinquent,” says Thukral.
How it works: It’s a three-digit numeric summary of one’s credit history and is derived using the details provided by banks and financial institutions. Typically, individuals are given a score between 300 and 900 points. The closer your score is to 900, the more easily your loan application gets processed. Most banks want a CIBIL score of over 650 in secured loans such as home or auto loans and 750 for unsecured loans such as a personal loan or credit cards. “It’s used in cross-selling and up-selling by banks and financial institutions,” says Abhijit Bose, head, retail assets, Development Credit Bank.
How it’s used: CIBIL members, who include banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies, use the score to determine an individual’s credit-worthiness. The score indicates both his current leverage and how likely he is to pay back a loan. “It helps a financier assess the credit-worthiness of an individual, in an objective and standard manner. A loan is sanctioned after reviewing the credit score in conjunction with other criteria like income, bank statements and a personal interview,” says Jan Van Wellen, chief risk officer, ING Vysya Bank.
Benefits of the score: It facilitates faster and more objective lending decisions. “Customers with a high credit score can get faster access to loans and at a more attractive interest rate than an individual with a low score,” says Arvind Hali, head, retail assets and credit cards, Dhanlaxmi Bank. Late payments or defaults have a significant impact on your score, as does high utilisation of your credit limit. While increased spending on your credit cards may not necessarily negatively affect your score, an increase in the current balance does imply an increased repayment burden.
A higher concentration of secured loans like home and auto is preferred over unsecured loans such as a personal loan or credit cards. Lastly, if you have applied for many loans, or have recently been sanctioned new credit facilities, lenders will view your application with caution. This credit-hungry behaviour indicates that your debt burden is likely to or has already increased and you are less capable of honouring an additional debt.
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Courtesy: New Indian Express