Understanding its Role and Importance Of Your CIBIL Score
The Credit Information Bureau of (India) Ltd. (CIBIL) that came into being in 2001 has managed to unlock full potential of the Indian economy.
So much so that what was merely a four million credit record base with just 13 members has today blossomed into a parent body with nearly all banks and financial and credit institutions worth their name registering with it. Also, the total number of loan accounts opened today run into millions with the clock continuously ticking 24 x 7 at an ever-increasing rate. This latter bit understandably has been possible only due to the credit information that CIBIL supplies to the banks and lenders effectively and promptly.
What CIBIL basically does is to serve the lending and financial institutions through the timely creation of CIBIL Score. The CIBIL credit score is accepted by all concerned including the RBI as one major yardstick based on which lenders can take profitable loan, credit and in turn investment related decisions.
The RBI has also given its nod to CIBIL and encourages banks and other lending institutions to consider the CIBIL credit reports and its credit score while deciding on loans and credit cards.
Even with more than a decade gone by and so much information available about CIBIL why is there still much confusion about its basic role and mission? The uncertainty is largely in the minds of the loan applicants only. They are not sure whether CIBIL is a central bank authority that is there to serve as yet another watchdog or merely another financial body with no clear role for itself.
If one addresses the basic question clouding the minds of numerous loan applicants which is whether CIBIL is a watchdog or is it actually a facilitator for the credit and finance sector, the following answer automatically surfaces. Don’t underestimate the importance of your CIBIL score in various aspects of your life.
To begin with, CIBIL is not a watchdog whose sole job is to continuously generate defaulters’ list for the banks. Instead, it is the first RBI licensed credit bureau that has served the economy rather impressively in its brief but remarkable tenure this far.
On the one hand, CIBIL continuously receives credit behavior as well as personal identity related details from the banks and on the other, processes and analyses the data that eventually emerges in the form of the Credit Reports as well as the CIBIL Credit Score.
Effectively this implies that any person anywhere in India, who has ever applied for a loan, credit card, etc., will find their well researched credit file prepared by CIBIL. CIBIL supplies this vital piece of credit information only to the banks. Based on this report and score, the lenders are able to decide on the spot on the loan applications presented to them. Since their investment decisions are based on well researched CIBIL credit reports and scores, there is a near perfect absence of risk involved.
This has expectedly resulted in the credit industry enduring a far less number of defaults and bad loans than what was the case before CIBIL.
The presence of CIBIL has directly and indirectly benefited all the sections of the economy. Individuals, institutions and organizations who need loans and credit, as also the banks, insurance companies and the non-banking financial companies (NBFCs), all rely on CIBIL scores to take informed decisions related to loan applications and credit sanctions.
The other question plaguing everyone’s mind is whether all new consumer credit applications are approved only on the basis of the credit records made available by CIBIL, or are there other criteria as well?
Practically all loan, credit and investment related decisions are taken by the lenders mainly on the CIBIL credit information and scores. These are in turn based on the credit behavior of the respective loan applicants. This renders their decision very prudent and risk free.
However, the bankers and financial institutions besides the data from CIBIL also have their very own clearly laid out set of factors to consider. It is only the combined weight of all this information that leads them to the final decision whether to approve the loan or not.
These include – the applicant’s capacity to repay the loan or credit. This in turn entails an enquiry into their known sources of income and the sustainability potential. The other important consideration is the availability of a collateral or guarantee that can serve as the mortgage for the secured loan being offered.
So, if you maintain a high CIBIL Score, your loan application will be considered favorably and you are also likely to get credit at attractive terms.