Cibil Score 
also known as Credit Score

What is CIBIL?

CIBIL - Credit Information Bureau India Ltd, also known as Credit Bureau is India’s leading and reputed Credit Information Company. They collect and maintain loan and credit card payment records of individuals and commercial entities. These records are provided to them by banks and other financial institutions on a monthly basis. CIBIL will use this in generating Credit Information Report (CIR) and Credit Score for individuals and commercial entities. They provide these reports to lenders on request for the purpose of evaluating and approving loans.

What is a CIBIL Score?

CIBIL Score or credit score is a rating which indicates a person’s credit-worthiness. The score ranges from 300 to 900 and is derived by CIBIL through statistical algorithms that analyse an individual’s credit history from the past six months at least. This history includes loans, repayment patterns, defaults in repayment and other data relevant to a person’s credit-worthiness. Credit score plays an important role while applying for a loan; banks use this as a tool to mitigate default risk while lending. High score indicates that the borrower is credit-worthy and vice versa, high credit score will get you fast approvals on loan and even better interest rates.

CIR – Credit Information Report or CIBIL report has a record of all your past loans, credit card dues, repayment history, defaults in repayment, current outstanding on borrowed amount and so on from various banks and financial institutions over a period of time. A credit score is derived from the details available in the credit report post some algorithmic calculations.

CIBIL Score Analysis

How to get CIBIL Score?

You can get your CIBIL Scores and CIR online through the official CIBIL website https://www.cibil.com. Here are the steps to follow,

1. Visit the site
2. You will need to fill your personal details like Name, Phone no, Identity proof etc
3. Cibil allows you to check your credit report for free once every year
4. If you have already availed the free cibil score for the year, you will have go to a payments page where you need to pay Rs 500 through credit/debit card, net banking etc
5. Post payment, you will need to go through online authentication to confirm your identity by answering a few questions regarding your credit history. This step is not be required if you are pay using your own credit card.
6. If you pass authentication, you will be able to download the report instantly and the report will also be emailed to you
7. If you do not pass the authentication, you will have to upload your KYC compliant documents along with the online payment confirmation form. After verifying the documents, your report will be mailed to you in 7 business days

You can also follow the manual approach to buy your credit score by downloading and mailing a request form to CIBIL.
Fill all the required details and mail the form with self-attested KYC documents, a Demand Draft(DD) of 500/- to the address mentioned in the request form.
Your credit score will be mailed to you within 7 business days post verification.
Note* - KYC details and requirements are also available on the official website of CIBIL.

How do you improve your CIBIL Score?

Correcting your CIBIL Score is not a cake walk, it will take a few years to improve the credit score. You need to be patient, follow the tips given below and be consistent in your efforts. It is also important to follow this financial disciple once you have achieved a good credit score to maintain it further.

• Check your Credit Information Report (CIR) – The first thing to do when you know that your credit score is low is to check the credit information report. Make sure all the details in CIR are accurate including personal details and credit history. If you identify any errors, you can raise a Dispute Resolution request to CIBIL online by filling the Dispute Resolution form. It might take approximately 30 days to resolve a dispute.
• Manage your Credit cards – Start paying your credit card bills well before the due date. Set up ECS to make sure that the repayments are done on time. If you have too many credit cards, reduce this to 1 or 2 cards as having too many shows you are credit hungry thus reducing your credit score.
• Credit limit - Do not use your complete credit limit every month or every time. It is advisable to use only 30 – 40% of the credit limit. When you are repaying the bills, make sure you pay the full outstanding rather than the minimum balance.
• Manage your Loans – Firstly, start paying your EMIs on time. In case of several loans, make sure it is a good mix of secured and unsecured loans. It is advisable to have 20% of unsecured and 80% of secured loans. All of your personal loans, credit card outstanding and vehicle loans are unsecured loans and they can have a negative impact on your CIBIL Score. If you have completely repaid your loan don’t forget to get the NOC – no objection certificate from the bank /financial institution just to ensure the legal closure.
• Opt for debt consolidation – If you have several loans, managing and paying EMIs will be challenging and chances of missing payments will be high. Consolidating all these debts into one loan will help you make payments on time and reduce your overall interest rate and therefore the EMIs as many banks offer a lesser rate of interest for debt consolidation.
• Don’t apply for a new loan – While you are trying to improve your CIBIL Score, do not apply for a fresh loan. Rather make sure you are managing your current loan well by paying EMIs on time. Never borrow more than what you can manage, pre-pay your loan when you have surplus funds.
• Several credit score inquiries in a short span - In the case of an emergency, don’t apply for loans in several banks at the same time because more queries on your score might signify you are credit hungry. It is better to take professional help from services like Cashkumar to apply with banks where you are eligible.

Factors that affect CIBIL Score

• Track record of your payment – The CIR report will record all your loans, credit cards usage, repayment history, default or delay in payments etc based on which the credit score will be calculated. Loan repayments account for 35% of your score so it is very important to repay your EMIs and all bills well before the due date. Any delays or defaults will have a negative impact on your credit score and will indicate that you have trouble servicing your loan.
• Good Credit mix – This accounts for 10% of your credit score. If you are servicing several loans make sure you have a good mix of secured and unsecured loans. Ideally the ratio is 80% of secured and 20% unsecured and making sure you are servicing them well by paying EMIs before the due date. Your credit score might not be ideal if you have only unsecured loans or only one type of loan as these are considered more risky in nature.
• New loans and credit cards – Applying for several loans or having several credit cards is not a good option. In addition, applying for loans with several banks and financial institutions at the same time will have a negative impact on your credit score. These banks and financial institutions run an inquiry on your CIBIL report every time you apply for new credit such as a loan, credit card etc- to check your financial health. Every such query will be recorded in your credit report and too many such enquiries or several enquiries in a short span of time will have a negative impact on your credit score. The impact is worse if the enquiries do not lead to a loan approval or if multiple loans are approved in the previous six to 12 months as this indicates a credit hungry behaviour. Note this factor has 10% weightage in your credit score.
• How long have you been servicing debt - The amount of time for which you have been using credit is an important factor and has 10% impact on your credit score. If you have been servicing debt for a longer period of time and have been responsible by making timely repayments, it will have a positive impact on your CIBIL Score. But make sure you are not on credit all the time, as this indicates that you don’t have enough disposable income to cater to additional needs hence getting an additional loan will be challenging.
• Credit utilization or the amount you owe to the lender – There are two basic things when it comes to credit utilization, one is your credit card limit and the amount you are utilizing. Never use 100% of your credit limit, as this will lower your credit score. It is advisable to use only 30 – 40% of your credit limit. In case you are planning a big purchase, request your bank to increase your credit limit as this will keep your credit score intact. Also paying minimum balance towards credit card is not sufficient. Make full payments as it will have a positive impact on your credit score.
• Being a guarantor – Apart from your dues, if you have guaranteed any loans belonging to friends/family or a second or third holder of any account with credit, make sure the dues are paid on time. A guarantor or joint account holder is as equally responsible for the loans or credit as the applicant himself. So make sure you keep a tab on these credits as well because they will impact on your score if not serviced well.
• Not checking your CIBIL report or CIBIL Score – Being unaware of your credit score is more dangerous than the rest. Only when you know your score and reports can you take the right corrective measures. Checking your score have no impact on it as it is considered a soft inquiry. It is a good practice to review your CIBIL Score and report once or twice a year to make sure the transactions look accurate. If you find anything wrong then this process will help you get the discrepancies corrected and reflect the accurate score.
• Closing your credit cards – It is a myth that closing credit cards will improve your credit score. If you have had a credit card for a long time on which you have maintained a good payment history and have zero outstanding balance then do not bother with closure. This will have a positive impact on the score as it shows that you are responsible with your credit and you are not credit hungry. Closing the card with the same spending pattern might also get your credit utilization limit high, as you might have a lesser limit or no credit limit with the existing card. Also closing any card with balance due will be considered negatively. So first clear the dues and think twice before closing a card.
• Not availing a loan or a credit card – If you think that not borrowing or owing a credit card will result in a better credit score then think again. This is worse than having a bad CIBIL Score. If you do not borrow, you will not have a credit history and fall under the category of CIBIL -1. Most of the banks and financial institutions will not lend to a CIBIL -1 as they cannot gauge the default risk. When lending, banks prefer those who have a long history of clear credit repayment compared to a borrower who has no credit history at all. The trick therefore, is to use credit responsibly.
• Loan settlement or write off – The golden rule is to not borrow an amount which you cannot repay. It is very important to manage your credit well. In a situation where you cannot repay the loan in full or in part, banks will either write off or settle your debt, which will add you to the blacklist for atleast 7 years. In the case of a dispute with a bank regarding a loan or its charges, contest the case but do not stop paying EMIs.

Mistakes that affect CIBIL Score

• Not checking your credit report and CIBIL Score and not disputing erroneous items on your CIBIL Report
• Delayed payment on EMIs and defaults on credit cards
• Utilizing a high percentage of credit limit on your credit cards
• Closing your oldest credit card account with which you have maintained good credit history
• Paying only the minimum amount due on your credit card
• Bouncing your cheques
• Going for a "Settlement" instead of properly closing an account
• Having just one form of credit, especially unsecured
• Not availing a loan or using a credit card
• Not pausing the loans and having continuous debts
• Having several loans and credit cards at the same time
• Loan applications to several banks at the same time or several in a short span of time
• Borrowing more loans than you can service

How much does missing on loan payments or credit card dues affect CIBIL Score

Repayments on a loan account for 35% of your credit score, so missing out on EMIs and credit card bills will hurt you a lot with respect to the credit score. It is really important to maintain financial discipline and service your loans well by paying EMIs on time to keep your credit score intact. Missing one or two payments which you have paid subsequently will hurt your credit score temporarily, but anything more than that can have a bad impact.

If you repay the delayed EMI or a credit card bill within 90 days, it will have a minor impact but any delay of more than 90 days is unacceptable. Banks will mark this as a Non performing asset (NPA) which will negatively impact your credit score.
The effect also depends on the timing of the delay. It is a red flag for banks if you have missed payments in the last six months before applying for a new loan as it indicates that there are chances you could default. If you have delayed one or two payments in the past and have caught up with them quickly and made sure the subsequent EMIs are paid on time, your credit score will eventually bounce back.

However, your credit score will be lower if your CIR shows that you have missed a few payments. Most credit card companies conduct a quarterly review of the credit score. If they see a deteriorating pattern on your credit score, they will take actions such as reducing your credit limit, not offering you additional loans or fresh loans. Therefore it is always good to pay your EMIs and credit card bills well before your salary date to maintain good credit score which will help secure loans in the future.

What is settled in CIBIL?

Have you ever borrowed more than you can service? Have you ever defaulted on your EMIs or credit card bill? If so, you are sure to get a call from the bank to SETTLE this amount and get out of the debt trap. They do this by asking you to pay a discounted amount against the loan. You might think this is the best option at that point in time, but hold on! This might get your credit score in a real bad shape.

First, let us understand what is Settled and Written Off

When you are in a debt trap and unable to make the payments on your debt, banks will provide you with an option pay a lumpsum. This is a part amount in lieu of the total amount required to close the loan. It is usually initiated when you have defaulted for more than six months. This amount is negotiable with the lender based on your financial stand but it will not be less than the principal in most of the cases.

Written off is an instance where you have defaulted on most of your EMIs and in a state where you are unable to pay even the settlement amount. Banks usually write off loans 180-270 days after the payment date. Banks then receive the amount you can pay them and write off the rest and report this as a loss.

The settlement can happen both before and after the write-off as also when there is a dispute between the lender and the borrower regarding the loan. Even when the settlement is done, make sure the rest of the amount is written off by the bank otherwise this keeps accruing and adding up to higher amounts hurting your credit score even more. This might happen when banks don’t follow the right procedure or when their reporting in incorrect.

How does this affect your CIBIL Score?

Banks report your credit status to CIBIL every month. If you have started defaulting on any of your EMIs or bills this will be reported to CIBIL routinely and your CIBIL Score would have started to decrease. Banks would again report to CIBIL when you accept a settlement offer and this will be reflected on your CIBIL report as settled. In the case of a write off, the CIBIL report would have a comment ‘written off’ against the loan.

As a settlement or write off imply that that customer has not been able to pay past dues, banks will terminate all relationships with the customer and include them on a blacklist for atleast 7 years. This will prevent you from getting any loan in the future and your CIBIL Score would drop drastically.

The conclusion is never go for settlement and always pay your dues completely and pay them on time. If you have ever gone for settlement and hence suffering from a low CIBIL Score, the first step is to pay the due amount to the bank and get the settled or write off flag off your credit report.

However, this will not instantly improve your credit history. The credit report's DPD (days past due) section will continue to show that you had defaulted. The DPD section carries information on dues for the past 36 months. This means even after you pay the full amount, the credit report will continue to show for 36 months the period for which you had defaulted. Only after following good financial discipline for the next few years ca you expect your credit score to improve.