Decoding your CIBIL score

Answers to six commonly asked questions about CIBIL score that will help clear your confusions

In the world we live in, the CIBIL score of an individual has become very important. Despite this, the role CIBIL score plays in assessing the state of one’s credit health, still causes confusion. If you too are unsure about how your CIBIL score impacts you, help is at hand.

Here are six questions we are answering today that will help you decode your CIBIL score better.

To have an impeccable credit history is of utmost importance these days. The way you handle your finances will impact your CIBIL report and CIBIL score. While a good CIBIL score is your ticket to easy access to loans when you are in need of it, irresponsible credit behaviour and thereby a bad CIBIL score may even harm the prospects of you attaining your dream job! Confused as to how this might transpire? Read on to find out more.

What is a CIBIL score?

CIBIL Score is a numerical expression that predicts the likelihood of default of a person in the next 12 months. It is mainly influenced by your past repayment track record captured in your CIBIL report. This means, if you have made payments on time on all your loans on or before the due date, it is very likely that you have a good credit score, and hence banks look at you as a good customer. Why is my CIBIL score important?

When you apply for a new loan or a credit card, it is now mandatory for a bank to access your CIBIL score to assess how creditworthy you are. A good CIBIL score (above 750 out of 900) puts you in a vantage position as lenders would vie among themselves to offer you the best interest rates. This is because your CIBIL score conveys that the chances of your turning delinquent are nearly nil. On the other hand, a poor CIBIL score may lead to the rejection of your loan application altogether.

That’s not all. Your CIBIL score also has an important role to play if you happen to apply for certain jobs, especially in banking and finance sector, IT sector and other multinational companies as well. It has been found that those who are financially disciplined make diligent and disciplined employees in their workplace as well. Therefore, while performing a background check on you, your employer may ask you to submit your CIBIL report among other documents.

If your prospective employer finds that your credit behaviour is unsatisfactory, you may even be rejected as a candidate outright. It may be noted that if you are trying to find a job in a bank, a CIBIL score of less than 750 will not do. However, if you approach the bank as a customer, the same bank may still consider giving you a loan if your score is between 700-750.

What determines my CIBIL score?

Your CIBIL score is based on the information in your CIBIL credit report. There are primarily five factors that go into the composition of your credit score. In order of their importance they are, your repayment history (35 per cent), utilisation of credit (30 per cent), average age of credit accounts (15 per cent), your mix of credit (10 per cent) and the number of inquiries that lenders make each time you apply for a new loan or a credit card (10 per cent).

To maintain a good CIBIL score, make all repayments of your loans and credit card outstanding on time, keep the balances on your credit cards low, keep the overall utilisation of credit below 30 per cent on your credit cards, have a healthy mix of secured and unsecured credit and finally apply for credit only when you are in dire need of it. 

How can I access my CIBIL score?

Your CIBIL score is literally just a click away. You need to log on to cibil.com and follow the simple instructions to procure your score. You will need to fill out your personal details, make a payment of Rs 470 and authenticate your identity on the CIBIL’s website. Once your authentication is complete, your CIBIL score will be sent to your email ID, the same day.

Does checking my own CIBIL score impact my score negatively?

No. When you request for your own credit report from CIBIL it is considered a “soft” inquiry as opposed to that of a lender’s inquiry which is considered a “hard” inquiry. Too many loans applied for in quick succession will lead to many hard inquiries which will then lead to negative impact on your CIBIL score.

How often should I access my CIBIL credit score?

As a prudent practice it is good to check your CIBIL score and CIBIL report at least once every year. If you haven’t done so, make sure you access your CIBIL score and report at least six months prior to applying for a new loan. This is to ensure that your CIBIL score is satisfactory and your CIBIL report is free of any discrepancies.

Now that you know how important your CIBIL score is and the way in which it impacts your life, it is highly recommended that you keep a check on your financial health by accessing your CIBIL score periodically. Always bear in mind that your income level is not that important to maintain a good CIBIL score, but your attitude towards handling credit!

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.