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Home Loan
Your Credit Worthiness In Three Digits
Frequent defaults or late payment of EMIs and credit card bills affect your credit-worthiness

I have been doing TV shows on home loans, personal loan and credit cards for quite some time. The most frequently asked questions on the shows are: What is CIBIL report? What is CIBIL score? How does one obtain CIBIL score? How to improve CIBIL score? Let us now discuss all this.

What is CIBIL report and CIBIL score?

Any lender before granting you a credit facility, be it a loan or a credit card, first assesses the probability of your default in servicing the loan and timely repayment of your credit card dues. For this purpose, banks access details of your credit history from some of the credit information bureaus established in India.

The government has enacted “Credit Information Companies (Regulation) Act” under which credit information bureaus like Credit Information Bureau (India) Limited (CIBIL) are established. Financial institutions like banks and housing finance companies provide details of transactions, in respect of credit cards, home loans and personal loans with their borrowers to these credit information bureaus. 

CIBIL is the pioneer credit information bureau established amongst others. Data reported by various banks, housing finance companies etc. are collated at the CIBIL. Details of all your credit financial transactions like credit card transaction, payments, default and delays in home and personal loan EMI, loan and credit card enquiries are reported by these financial institutions. All this data after collation are made available in the form of a single report at one place by CIBIL in the form of CIBIL report. This report contains details of your credit transactions, overdue amounts, defaults and delay on payment of your dues in respect of your loans and credit cards. In addition to the Credit report, CIBIL also provides CIBIL score. CIBIL score is a numerical figure between the range of 300-900 indicating creditworthiness of the borrower.  Higher the number, the better it is. The credit score and credit information report help the lenders in quickly identifying consumers who are likely to service the loans taken by them and who are likely to default on interest and principle payment. This translates into faster loan approvals.

The credit score helps loan providers in quickly and prima facie determining as to whom they would like to evaluate further to provide credit. As per the CIBIL records, loan providers prefer credit scores which are greater than 750. As per CIBIL data 79% of the loans sanctioned were to the persons whose CIBIL score was 750 or more. So, 750 CIBIL score can be considered to be benchmark for lending.

Why you should obtain your CIBIL report before you buy a house?

With the current high prices, it is almost impossible for a person to buy a house without taking a home loan. When you buy a property or book a  property, it is necessary for you to have sufficient funds at your disposal either in the form of bank balance/investment or your ability to borrow either as a housing loan or otherwise. Since, in majority of the cases people take home loan for buying the house, it is essential for you to assess your ability to get a home loan.

Before sanctioning you a home loan, the bank verifies your credentials and creditworthiness to get an assurance ensure that you shall service the housing loan regularly.  These details of credentials of creditworthiness comes to the lenders in the form of “CIBIL score” and “credit report” which helps the lenders to minimize risk of the housing loan being not serviced regularly or becoming bad.

As the lender will invariably obtain details of your credit profile from Credit Information Bureaus like CIBIL, it is in your own interest to know in advance as to what details will be available to the prospective lender from CIBIL. This will help you in finding out whether you will be able to get the home loan or not. There may be various reasons for your home loan application being rejected. Sometimes it may be due to your bad credit history like default in payment of credit card or in servicing other loans. Sometimes your report/score may be adversely impacted due to adverse transactions of someone else being included under your profile because of similarity in the fields like address, name, city etc. or due to sheer carelessness.

So in the eventuality of your ineligibility to get a home loan due to wrong CIBIL report or low credit history in CIBIL records, your plans to buy a property may go haywire when you have already partly implemented your plan to purchase a house by either paying token money or advance to the builder. So in case you have obtained your CIBIL report in advance and find some incorrect transactions in your credit report, you can take corrective actions in advance to get them removed before the lender actually accesses them. 

After 35 years of age doctors generally advise you to go for regular health check up for full body to be able to take preventive and corrective steps for your health, it equally applies to your financial health as well. So in case you want to avail home loan, you should access the CIBIL score and report in advance. It is always good to obtain at least CIBIL report once in a while as this does not cost much in terms of money.

How to get your CIBIL Score and report?

As discussed above it is very important for you to know whether there are any incorrect entries reported in your account, many of you must be contemplating obtaining your own report/score.

There are two products which you can purchase from CIBIL. One is pure CIBIL report without score. CIBIL report contains details of your transaction history of credit cards, loans for past two years. This can only be obtained offline. The form can be downloaded from the following linkhttps://www.cibil.com/sites/default/files/pdf/consumer-request-form.pdf  Though the form’s heading reads as is “application form for CIBIL Score” you have the option to buy only CIBIL report without the CIBIL score. CIBIL report costs you only Rs 159. The payment has to be made by way of demand draft in favour of “CIBIL” made payable at Mumbai. In addition to the demand draft, you have to attach either copy of the passport or a driving licence. Alternatively you can attach one document as proof of identity which can be either PAN card or a voter card and another documents as proof of your address like bank statement, telephone bill, credit card bill or electricity bill.

In case you want to know your CIBIL score so as to ascertain whether you are prime facie eligible to get a loan, you can get it online as well as offline. For obtaining the CIBIL score with CIBIL report in physical form, the form available on the above link can be used.  For the report which comes with your credit score you need to pay an amount of Rs 500 by way of demand draft.

The CIBIL also provides the CIBIL score and report online. You can use the following link to apply for the CIBIL Score/report on line. https://www.cibil.com/online/credit-score-check.do . The process is very easy. First you have to fill in the basic details about yourself. After this is over, you need to make online payment of Rs 500. Once you have made the payment, you need to authenticate yourself. For this you are required to answer three questions correctly out of five questions related with your credit cards and loan accounts. So, please keep the details of your recent loans and credit card transaction handy for the authentication. In case the authentication is through, you instantly get your CIBIL score and CIBIL report. This is emailed to you also. However, in case the authentication fails, you can send the application by post to the address mentioned on the website along with the proof of payments and the documents for identification and address as mentioned above.

How to improve your spoiled CIBIL score?

Now let’s discuss the most important question. How to improve the already spoiled credit score when you are not able to get any further credit/loans from banks? First and immediate step to be taken is to pay off the overdue loans/credit card outstanding. Pay your EMI and credit card dues on due dates without any fail in respect of your current loans and credit cards payments. CIBIL is required to maintain the data of the borrowers for minimum seven years. The score is calculated on the basis of the data of seven years though in your CIBIL report you get the data for two years only. The data of recent years have higher weight and the weight gets lower progressively for the older data. So it is important for you to create good history for current period. 

Since you are not able to get any further credit facility from the banking system, it is difficult for you to improve it. So is there any way out?

Yes there is. You can borrow from the banks against some tangible security. You can even take a secured credit card against fixed deposit placed with the bank so the bank is fully secured as the limit on the credit card is restricted to the amount of fixed deposit with bank and at the same time you also get the opportunity to work on your credit history. You can also obtain secured overdraft or loan against very liquid asset like bank fixed deposit. Pay the amounts outstanding on your credit card on due date without default or interest on your secured overdraft so obtained. With consistent good service record, you will be able to reconstruct your good credit history of recent times and the bad history will move into past and thus becoming less and less important. Please be patient with this. This is very slow process and may take years for you to get your credit score improved substantially but this works for sure.

Avoid frequent applications for loans and credit cards. These are termed as enquiries and are reported to CIBIL. Such frequent inquiries, particularly for personal loan and credit card, are perceived as hunger for credit and adversely affects your credit score. 

I am sure all the discussion will help you understand the importance of CIBIL score and report. Some of you must be preparing for obtaining their score/report. If not CIBIL score, you should at least obtain your CIBIL report which does not cost much money also. 


Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited.

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