Has your personal loan been declined due to a low CIBIL score? A rejection can throw you off balance, particularly in an emergency. The importance of tracking your CIBIL score cannot be overstated, as delaying an EMI payment or overspending on your credit card can lead to a low CIBIL score. A CIBIL score is a numeric score generated by CIBIL (Credit Bureau of India Ltd) that tracks your credit dealings. A high CIBIL score helps you secure the lowest interest rates and suitable terms for your loan, whereas a low CIBIL score can put you in a spot when you need credit urgently.

What Counts as a Low CIBIL score?

The numeric score range is 300 to 900 points. A low CIBIL score is relative, and banks have their own sourcing benchmarks. A CIBIL score of 750 points is required to be granted credit, and a score below 650 points is considered low. If you have a low CIBIL score, you may face the following issues:

• Difficulty is securing a Personal Loan.
• Secure loans are granted at a higher interest rate.
• Lower limits assigned to credit cards.

The CIBIL score is generated based on an individual’s credit transactions. A score is allotted based on the following Credit behaviour patterns:

The percentages allotted by CIBIL

Key Reasons for a low CIBIL score

Keeping a tab on your CIBIL score is necessary. You can check your CIBIL score online from www.CIBIL.com, from your Bank account or through a payment App. If the decline in your CIBIL score has come as a surprise, you need to check the reasons for the low score. The major reasons for a Low CIBIL score can be classified as follows:

Credit usage and credit history

The credit history accounts for 35% of the CIBIL score: previous credit usage and repayment records are a mark of your credit management and will significantly affect your CIBIL score. Timely repayment of credit will add to your credit score. The following lapses can be the reason for a low CIBIL score:

• Delayed payment of EMI: The instalment for your loan repayment is deducted from your bank account on the scheduled date. If there are insufficient funds in the account, the transaction will be returned unpaid and recorded as a bounce in your CIBIL history. A history of delayed loan repayments will downgrade your CIBIL score.
• Non-payment of Credit card bills : A credit-free period of 40 to 50 days for credit card usage is allotted by most Banks. A payment statement is generated for the amount due by the due date. Non-payment of the bill or of the minimum amount of 5% is reported to CIBIL, and the delay is further recorded in buckets of 30, 60 or 90 days.
• Pending Accounts. The repayment of loans must be completed and confirmed with a no- dues certificate from the Bank. All pending accounts will incur interest, remain on the CIBIL history, and prevent the CIBIL score from increasing. If not paid, it will be marked as delinquent over time.
• Settlement of pending dues : Customers unable to make timely repayment of dues may opt for a settlement. A settlement involves payment of overdue amounts without interest. The Bank treats it as a compromise rather than a payment in full. A settled account is viewed unfavourably and is a major reason for a low CIBIL score. A settlement is not a good option, as the account will be classified as being in default.

Existing Credit Utilisation

Past discrepancies can be overlooked if the customer is diligently repaying current credit dues. CIBIL allocates 30% of the score to an individual’s current credit utilisation. The customer’s current credit usage reflects their current financial stability. Take note of the following, which can be reasons for a low credit score.

• EMI returns or bounces: A return of a loan instalment or a bounced cheque for a credit card payment will hit your CIBIL score and be recorded in your CIBIL history. Prompt repayment is essential, though you may not be issued further credit for the next three months.
• Excess utilisation of Credit: A balanced usage of credit, up to 60% of monthly income, is an ideal ratio. Excess credit appended suddenly from multiple lenders and Application loans indicate that the customer’s liabilities are stretching his income. The repayments can become unaffordable, increasing the risk of delays. The CIBIL will also reflect that the customer is “Overleveraged”.
• Maximised Credit Cards Usage: Credit cards are handy payment options with a credit-free period of 30 to 40 days; payments for spending must be made on the due date, failing which a high interest rate of 36% to 40% is charged. Overuse of credit cards and failure to clear bills promptly signal financial stress and lead to a decline in the CIBIL score.

A mix of Credit Usage

Customers using a mix of secured and unsecured credit are likely to have a stable CIBIL score; using only mortgages, auto loans, or credit cards will not give the CIBIL score the required boost. 20% of your CIBIL score is allotted to the credit mix.

• Unsecured Credit: An unsecured credit card or a personal loan is provided free of collateral. Responsible usage gives the lender confidence and helps build a credit score quickly.
• Secured credit: Repaying a mortgage is a long-term responsibility for a customer. Home loans with a tenure of 20 years or more allow CIBIL to assign scores based on the vintage of credit usage and timely repayment.

Insufficient Credit history

The CIBIL score is based on a customer’s credit behaviour over time. It takes 6 months to 1 year for CIBIL to generate a reasonable score. 20% of the score is allocated to building a credit history through regular credit use and timely repayments.

Too many CIBIL Enquiries

Each time you apply for credit, the lender will send an inquiry to CIBIL to review your CIBIL score and history; each inquiry will lower your CIBIL score by 10 points. For example, if you apply to 3 lenders simultaneously for a personal loan, your CIBIL score is hit by 30 points. More than 3 to 4 inquiries in the past 3 months can lead to the rejection of a credit card or personal loan request.

Errors in the CIBIL report

Regular credit usage and timely EMI payments, and still facing a personal loan rejection? You need to check your CIBIL history for errors; the error could be due to a wrong report sent by a lender or a clerical error by CIBIL. Retrieve your CIBIL report to check for wrong entries that could be the cause of a Low CIBIL score. Take steps to rectify your CIBIL score.

Reasons for Credit Delays and Defaults that impact a CIBIL Score

Delays and defaults in repaying credit taken are due to the simple shortage of funds or for other reasons, notable are the following;

• Change of the ECS mandate bank account: If your salary account changes, the Bank should be informed in advance, and a request for a change of the ECS mandate should be made. If the Bank is not notified in time and there are insufficient funds, the EMI will return unpaid and will reflect in your credit history as a bounce.
• Loss of Employment: If you are unemployed, without a regular salary, it is advisable to arrange funds from other sources and maintain a sufficient balance in your account to clear the EMI . If you have outstanding credit card debt, pay the minimum balance by the due date to avoid default.
• Delay in salary credited: The EMI will be credited to the salary account on the due date. If the employer does not credit your salary on the assigned date, the EMI will be marked as unpaid. It is advisable to keep one month’s instalment as an advance, in case the salary credit is delayed.
• Unable to manage finances properly: If the expenses have increased due to unplanned expenditures, and you have made extensive usage of your credit card, individuals who are unable to manage their finances in such situations are liable for default.

What steps can you take to improve your CIBIL score?

• Reset of your Credit records: You cannot change your past credit history as recorded by CIBIL , but you can always work at making a fresh start.
• Try to clear the previous debt: If your financial situation improves, it is the best solution to repay the amount due and clear your debts. Repaying the outstanding amount, including interest, will close the account and improve your CIBIL score.
• Restart your history with commodities: Start rebuilding your score by purchasing commodities with your Credit or Debit card , convert the spend into EMI , and make sure you repay the instalments on time.
• Apply for a secured credit: a Gold Loan or a Loan Against Property , which requires a lower CIBIL score due to the security provided, can help you get the finance you need and improve your CIBIL score.
• Look for a successful relationship: A lender with whom you have a salary account, with a good average bank balance. Your CIBIL score may be overlooked as you have maintained a good repayment record with the lender.

Conclusion: Your CIBIL score calculations are not rocket science, but a follow-up and a consolidated report of your credit usage. A clear understanding of the CIBIL score ratings, as given above, will help you to avoid a Low CIBIL Score.

Frequently Asked Questions

The post Reasons for a Low CIBIL score first appeared on Yourloanadvisors.

Banks issue secured and unsecured loans to customers for specific needs, the foremost criterion being the ability to repay the loan on time. To monitor individuals’ credit behaviour, credit agencies compile data on all loans, credit cards, and other lines of credit. The most authentic of these is CIBIL in India, the Credit Information Bureau of India Ltd. Lenders look for customers with a sound credit history and a good CIBIL score. This write-up will help our esteemed customers understand ‘what is a CIBIL score’ and the details of the CIBIL Score.

What is a CIBIL Score and Why is it Important?

The CIBIL Score has become a priority for Banks and NBFCs; further credit is granted based on the applicant’s credit report, and an individual rating is assigned to an individual based on the performance of the various credit lines used by TransUnion CIBIL, reflecting creditworthiness.

Every time a Bank receives a loan or credit card request, an enquiry is forwarded to CIBIL to obtain the individual’s CIBIL score and history. A higher credit score means that you are a more reliable borrower, and lenders have to bear a lower risk while lending you money. Applicants with a CIBIL score of 750 or higher are offered higher loan amounts with better terms and conditions.

What is a CIBIL Score Range and What Does It Mean?

The CIBIL Score range is 300 to 900; scores closer to 900 indicate a low risk, while scores closer to 300 indicate a high risk.

CIBIL Score Requirements for Personal Loan

• A stable credit and a CIBIL score range of 750+ are required to apply for an unsecured, collateral-free personal loan.
• Applicants with a 0 or -1 CIBIL score can apply for a personal loan to HDFC Bank/ ICICI Bank if they meet the eligibility criteria.
• The CIBIL score requirement differs from lender to lender and depends on the terms.
• Banks accept a lower CIBIL score if the applicant has a credit relationship or applies based on a fixed deposit held.

What is a CIBIL Score for Secured and Unsecured Credit?

• Banks consider the CIBIL score and history when processing all credit lines, secured and unsecured loans.
• A personal loan and a credit card are unsecured and provided based on a customer’s profile; therefore, emphasis is placed on a high CIBIL score and the customer’s credit history.
• A secured loan, such as a home loan, a loan against property, or a vehicle loan, is secured by a mortgage. It may be easier for a customer to get a secured loan with a lower or nil CIBIL score.
• Banks may consider a mortgage request for an applicant with a below-average CIBIL score of 650 points and above, but applicants with a delinquent record or settled loans will have to apply to an NBFC.

Read More : NBFC Vs Bank Personal Loan

Have the CIBIL Score Requirements Changed?

• The CIBIL Score has become a priority for Banks and NBFCs, as keeping delinquencies and defaults below the acceptable percentage is essential.
• With the introduction of online credit platforms, application loans, and the granting of licenses to new NBFCs, the options for customers to get instant credit have increased the risk of customer defaults.
• The acceptable CIBIL benchmark has increased from 720 points to a minimum of 750 points, which is required to get an ICICI Bank credit card or an HDFC Bank personal loan.
• Banks check the customer’s credit obligations and CIBIL history for personal loan eligibility. If the customer’s existing dues exceed the FOIR, the request for additional credit is declined.

Can you get a Loan without a CIBIL rating?

• Personal loan applicants and credit card seekers can apply without a CIBIL score to a Bank that accepts a 0 or -1 CIBIL score, provided they fulfil the other eligibility criteria.
• Customers who are new employees or who have a salary account with the Bank are issued a personal loan without a credit rating. Though the credit limit or loan amount issued will be limited.
• Applicants over 30 years old without a CIBIL score are viewed negatively, and lenders assume they have changed credentials to cover a default.
• Secure loans such as Home Loan, Loan Against Property, or Vehicle Loan are granted without a CIBIL score if the applicant has stable employment and residence.

Can You Get a Loan with a Lower Score?

• It may be possible to get a loan against security rather than an unsecured loan if you have a lower CIBIL score.
• Apply to an NBFC willing to issue the loan amount you require, but charge a higher interest rate.
• Work on improving your CIBIL score by repaying debts on time and rebuilding your score

Practices that Impact a Credit Score

1. Honour the payment due date for the credit taken.

• Be vigilant about the due date for your Credit Card dues or the EMI for your loan.
• Ensure there are sufficient funds in your salary account to clear the EMI on the scheduled date.
• If there is a lapse, make the payment as soon as possible.

2. Do not apply for credit indiscriminately.

• 10% of the CIBIL score is allotted to the number of enquiries received from lenders.
• Check eligibility criteria and interest rate before applying for a loan or credit card.
• Each credit enquiry by a lender will negatively impact your score by 10 to 15 points.

3. Maintain a Healthy Mix of Secure & Unsecured Credit

• A secure loan, a loan against property, or a Home Loan with a vintage adds stability to your Credit Score.
• Unsecured credit, such as a personal loan or a credit card, can help boost a credit score quickly.
• All credit accounts that have been repaid on time and closed successfully add to the CIBIL score.

What is a CIBIL Score for Personal Loan Eligibility?

• The CIBIL score check has become a mandatory eligibility criterion for the personal loan process.
• A self-check at www.CIBIL.com before applying for a personal loan will help confirm eligibility, without negating the score.
• A CIBIL score of 750 or higher will ensure approval from most Banks.
• If your CIBIL score does not meet the benchmark, check for a suitable lender before applying.

Read More: Personal Loan Eligibility

Frequently Asked Questions

The post What is CIBIL Score: A Comprehensive Guide first appeared on Yourloanadvisors.

Personal loans are unsecured credit extended to customers for personal use and repaid within a fixed term. To keep the default ratio low, banks allocate funds to applicants who meet the eligibility criteria and have a history of meeting their financial obligations on time.

The CIBIL (Credit Bureau of India Limited) records and maintains credit transactions of individuals and issues them a score based on their Creditworthiness.  Banks and NBFIs check CIBIL before extending further credit. They refer to CIBIL to verify the following:

• The Credit Score of the applicant.
• The current EMI for loans being paid by the applicant.
• The existing Credit Cards the customer is using.
• All loans successfully repaid and closed.
• Any pending Credit Card dues and delayed EMI.
• Aberrations, delinquent or settled accounts, are reflected in the credit history.

Further Loan amounts are issued to the applicant based on the existing dues and financial eligibility to pay the additional EMI.

Can I get a personal loan with a “Nil” or “0” score?

A 0 or -1 CIBIL score indicates that you have either not availed of credit or do not have sufficient credit history. You can apply for an HDFC Bank Personal Loan or an ICICI Bank Personal Loan. 

The HDFC Bank eligibility criteria for applicants with a 0 or -1 CIBIL include the following:

• A net salary of ₹30k and above should be transferred to your salary account.
• Your employer must be on HDFC Bank’s Approved Company Category list.
• A minimum work experience of 12 months is required to process a personal loan.
• The applicant must be below 35 years of age to be granted a personal loan without a CIBIL score.

The eligibility criteria required for an ICICI Bank personal loan with a 0 or a -1 CIBIL score:

• A salary of ₹1 Lakh or More is required for applicants employed by non-listed companies.
• Personal loan applicants employed by companies on ICICI Bank’s approved list should earn a minimum monthly salary of ₹40k.
• The company the applicant is employed with must be registered on the MCA (Ministry of Corporate Affairs portal)
• The applicant must be gainfully employed for 12 months or more.

Why was my loan rejected despite a 750+ score?

A CIBIL score of 750+ is considered healthy and should make the applicant eligible for a personal loan. Below are instances when a personal loan can be rejected despite a good score. 

Customer is overleveraged: An applicant is considered overleveraged if:

• The EMI on existing loans exceeds 75% of their monthly income, 
• Or excess dues are pending on multiple credit cards.

 The CIBIL score may not be affected if dues are paid on time, but the request for additional funds may be denied.

The employer is not approved: The company a customer is employed with forms an essential part of personal loan eligibility. 

• • The request for an HDFC Bank personal loan is rejected if the applicant’s company does not feature on the HDFC Bank Company Category List.
  • If the company does not have a vintage of 5 years or more and is not listed on the MCA (Memorandum of Companies Association) portal

• Most Banks do not accept personal loan applications from applicants who work for a proprietor or a Partnership company.

Verification is negative: Customer verification is an essential part of the KYC regulations for issuing credit. Lenders perform a Video KYC and, if required, a physical verification at the applicant’s residence or office to verify the authenticity of the information submitted. 

If verification is not completed, the Personal Loan request is denied, even if the applicant’s CIBIL score is above the required benchmark.

Incomplete Documents: A personal loan is a collateral-free loan; it is processed based on the customer’s profile and the documents submitted, such as proof of income and KYC documents. A good CIBIL score will ensure personal loan eligibility, but if the required documents are incomplete or unavailable, the personal loan request will not be processed further.

Do private banks offer personal loans to customers with low CIBIL scores?

Private Banks offer personal loans as short-term funding with reasonable interest rates. As personal loans are offered without collateral, keeping the default ratio low is a challenge for most private Banks. CIBIL history and records help identify customers with higher CIBIL scores and a smooth repayment history. Although banks require a CIBIL score of 720+, each case is assessed on its own merits.

• Applicants employed in Category A companies, with no defaults in their credit history and a low CIBIL score, may be eligible for smaller personal loan amounts.
• If the customer has had an issue in the past and is now paying dues on time, they can be judged based on current credit usage.
• Account holders with fixed deposit accounts are eligible for a waiver if they have a low CIBIL score. A personal loan is issued to them, secured by a fixed deposit.
• Personal loan requests from applicants who have had a successful credit relationship with the Bank in the past and currently have a lower CIBIL score.

Are NBFCs better than banks for low-CIBIL-score personal loans?

NBFCs (Non-Banking Finance Companies) are similar to Banks, as they are also licensed to provide secured and unsecured credit in the form of loans. Banks and NBFCs set their own eligibility criteria and lending terms. 

NBFCs that offer personal loans actively are:

• SMFG Finance.
• AXIS Finance.
• Poonawala Finance.
• Piramal Finance.
• TATA capital.

NBFCs also require a CIBIL score above 700 and do not issue personal loans to applicants without a credit history. If you have a low CIBIL score, NBFCs do give some allowances, as compared to banks, based on the following:

Overleveraged Customer: If you are currently running 6 to 7 loans and your existing EMI exceeds the permitted income-to-EMI ratio, a Bank will decline your personal loan request as overleveraged. Whereas with NBFCs, you can transfer the principal balance of your existing personal loans to an NBFC. With a balance transfer, your EMI will decrease, reducing an excessive financial burden and increasing your eligibility for the required personal loan amount.

 CIBIL inquiries: Each time a customer applies for credit, the lender forwards an inquiry to CIBIL to check their existing CIBIL score, credit history, and credit lines. These inquiries will appear in your record, indicating the number of applications you have forwarded for a loan or credit card. Lenders view too many CIBIL inquiries as a warning that the customer is credit hungry, planning to apply for credit from multiple lenders simultaneously. Banks do not process a personal loan application if there are more than 3 credit inquiries on CIBIL in the past 3 months. Still, NBFCS accepts 6 to 8 inquiries, allowing the applicant to apply.

Application Score: is a value assigned to the customer’s details in the personal loan application form. NBFCS, such as SMFG Finance, use an Apps score before processing a personal loan application. If the customer details score above the required benchmark, the application proceeds; if it does not, it is declined. If the customer’s CIBIL score is low but the Apps score generated from other information is sufficient, the customer may still be eligible for a personal loan despite the low CIBIL score.

The post Top CIBIL-related queries for a Personal Loan first appeared on Yourloanadvisors.

What is a CIBIL Score?

A CIBIL Score is a numeric value issued to an individual by CIBIL (The Credit Bureau of India Ltd), signifying the individual’s creditworthiness. The score value ranges from 300 to 900 points and is issued based on the following:

• The credit used is a mix of secured loans, such as an Auto or home loan, and unsecured Personal Loans and Credit Cards.
• The repayment track of credit is maintained if the EMI and the Credit Card Bills are paid on the due date.
• The number of enquiries forwarded to CIBIL by lenders or the frequency with which the individual has applied for credit.
• The existing credit usage of the applicant, including the number of EMI paid and Credit Card dues.
• The length of credit usage, the number of years of Credit Card usage, and the extended repayment tenure of a Loan.

Banks require a CIBIL Score of 750+ points to issue a Personal Loan, though the CIBIL Score must meet the requisite benchmark both the CIBIL Score and CIBIL or Credit History are checked before issuing a Personal Loan.

What is a Credit or CIBIL history?

The Transunion CIBIL (Credit Bureau of India Ltd) commenced operations in India in 2007. It was the first credit agency to initiate the recording and maintenance of individuals’ and companies’ credit usage. Credit issuing organisations, including banks, NBFCs, and finance companies, forward data on credit issuance and repayment on an ongoing basis to CIBIL.

The CIBIL, in turn, maintains an exhaustive record under the customer profile specifications. Upon inquiry, this data is shared with Banks whenever a customer requests a credit.

So, ever since it started operations, your credit history, whether taken as a Loan or a Credit Card, and the number of times you applied for credit are included under the profile created and the control number issued. A Credit Report or history is updated within a week or fifteen days after a lender reports a credit activity. A CIBIL History contains the following information:

• Existing Credit Accounts:- Include all active credit accounts for Credit Cards, Personal Loans, auto loans, gold loans, home loans, Mortgages, and consumer loans.

Implications:- The EMI being paid and the outstanding Credit Card balances are taken into account when calculating the financial eligibility for an additional loan amount. The applicant’s existing obligations, net salary, and company category according to the Approved List of Companies are the main factors used to determine Personal Loan Eligibility.

• Closed Accounts:- All credit taken previously as a loan or a Credit Card repaid successfully will be marked as a closed account in the CIBIL Records.

Implications:- The closed accounts reflected in the applicant’s CIBIL History are evidence of adept financial management and add value to the Credit Score. The length of the account is also significant as it certifies that the user has been able to maintain a steady repayment schedule. A financer with credit that a customer has successfully used will be ready to issue further credit when required.

• Pending Account:- An awaiting account has a balance but no activity. This may be due to the customer being unaware of the pending dues, being unavailable, or due to miscommunication, controversies, and clerical errors.

Implications:- A pending account is akin to a thorn in the flesh the amount will accrue interest until it is fully paid, adversely affecting the CIBIL Score. If there is a dispute or an incorrect entry in CIBIL, the customer can bring the matter to attention and seek clarification. The applicant must settle the outstanding dues before any credit can be granted.

• Settled/ Written off Accounts:- If a customer has not paid the credit dues for 90 days or more, the Lender will contact the customer for payment. The customer is offered an option to pay the loan amount, excluding the interest. Henceforth, such a case is marked as settled. The loan is marked as a write-off if the customer is untraceable or refuses to pay the dues.

Implications:- According to CIBIL, a written-off or settled account is regarded as a negative remark, resulting in a dip in the score, and the customer will not be granted further credit. Customers may have the misconception that paying the original amount and availing themselves of a settlement option will help alleviate the pressure and clear the debt however, this is not the case. A settlement will only offer relief from collection agents, but the CIBIL is marred forever.

• Repayment Tracks:- The lender also reports to CIBIL whether the Loan EMI is successfully deducted on the due date or returned unpaid, along with the number of days after the EMI is cleared, with the late charges applied. CIBIL also records whether the customer pays the Credit Card bill on time. If the customer cannot pay the total amount, the minimum due of 5% must be paid. The delays are recorded as 30, 60, and 90-day past-due buckets.

Implications:- A payment delay due to a shortage of funds or an oversight cannot be mitigated and is always reflected in the CIBIL History. An infrequent delay in payments is overlooked, but a continuous string of delays will affect the CIBIL Score and give the impression that the applicant is not vigilant about paying dues on time.

• Credit Enquiries:- Before processing a credit request, the Bank will send an inquiry to CIBIL. Multiple credit applications made simultaneously or over time from various lenders will be mentioned in the applicant’s CIBIL History.

Implications:- Banks and NBFCs must send customer data to CIBIL every fortnight. If the CIBIL Report indicates that the applicant has made multiple queries quickly, the Credit Score decreases by 10 to 15 points with each inquiry. Banks are also wary of extending credit to customers who may seek funding from multiple institutions and struggle with repayment. Your application for an ICICI Credit Card is declined if there are more than five enquiries reflected in your CIBIL, and your Personal Loan Application to HDFC Bank can get rejected due to multiple enquiries. Therefore, please do not apply to too many lenders simultaneously, as it can hamper your credit standing and give a wrong impression to the lender.

Key Points for Comparison of a CIBIL Score and a CIBIL History

Banks will examine your credit history to gauge your credit management skills. This may surprise many who applied for a home loan a decade ago or briefly used a Credit Card without notifying the lender of their discontinuation of its use. There may be outstanding dues reflected in the account that could be a deterrent. A CIBIL Score above 730 points can initiate your Personal Loan Process, but a valid explanation is required if there are any irregularities in your credit history.

• The Credit History Cannot be Altered, But a CIBIL Score Changes with Credit Usage

CIBIL History:- Your credit report or history, which lenders review, includes all credit usage from when you first acquired credit to the present. Once an entry is made, it cannot be altered or removed unless the lender updates it or there is an error in the Credit Report that is corrected.

Credit Score:- Your Credit Score is reassessed based on constant usage and the corresponding entries in your CIBIL record. It will increase or decrease according to the individual’s credit behaviour. For instance, if you limit your Credit Card usage and do not utilise any other form of credit, your Credit Score will remain steady. However, your score will change if you Apply for a Loan or resume using your Credit Card while making timely payments.

• CIBIL Score is the Current Credit Status, Whereas CIBIL History Assesses Credit Usage

CIBIL History:- Your Credit History features years of credit usage, including repayment tracks and current credit. As per the recent Reserve Bank of India directive, Banks will now consider a credit history of 5 years instead of 7 as was previously done for the issuance of further credit.

CIBIL Score:- Your Credit Ratings will improve with credit usage. If you are a current credit user with a good mix of unsecured and secured credit, your CIBIL Score goes up accordingly. In contrast, if there is a delayed payment or current bounce in your record, the CIBIL Score will immediately reflect the same.

• The Eligibility for the Loan Amount is Calculated Based on Your Credit History, Not Your CIBIL Score

Credit History:- Your Credit History shows the EMI you are paying for all your existing loans and Credit Cards. If your credit card balance is unpaid more than your monthly income, and the total EMI you are paying will exhaust more than 60% of your income, your request for further credit is rejected due to being overleveraged.

CIBIL Score:- If you are paying the EMI for your loan on time and the minimum due on your Credit Card Bills, your CIBIL Score will not dip unless you apply for credit several times, and the credit inquiries reflect in your CIBIL History.

In Conclusion

Today, lenders are delving into the applicant’s credit history to examine past credit dealings before issuing a Personal Loan. It is a good idea to solve past situations when your obligations could not be fulfilled due to financial shortages, as banks remain open to negotiation. If there have been delays due to unusual circumstances, as in the case during COVID, when many faced a financial crunch due to loss of employment, a leeway can be given. Otherwise, making amends by clearing outstanding dues will stand you in good stead.

Check Your CIBIL Score and credit history regularly, as you are entitled to a free Credit Score and a Credit Report from CIBIL. A CIBIL Score above 750 points signifies healthy credit usage. It is the benchmark used by lenders as a scoring model and gives applicants the indication that their finances are in good shape.

Our past credit dealings are a window into your future credit behaviour. Therefore, a sound credit history will help you obtain credit easily when required at the lowest interest rate, the most suitable terms, and an optimum CIBIL Score.

The post CIBIL Score v/s Credit History: Key Factors for a Personal Loan first appeared on Yourloanadvisors.

The Data Recorded is Based on the Details of the Individual Primary, Which Include:

• The Name:
• Aadhaar Card Number:
• PAN Card Number:
• Mobile Number:
• Address:

Maintaining score records in our country is not easy with our mammoth population. Customer details are manually entered and forwarded to CIBIL bi-monthly per the Reserve Bank of India norms. There is room for error that can lead to customer details being wrongly updated, which can further lead to credit being denied based on a record of unpaid dues or delayed payments.

At Yourloanadvisors.com, we have assisted customers who were denied credit. Below is one example of a customer who was denied credit due to her CIBIL being wrongly updated, and how we assisted her in rectifying the situation.

The Customer’s Predicament was as Follows: Reena Applied for a Credit Card with ICICI Bank. Although her request was declined, it did not upset her or raise any alarms, as it was not a pressing need. The next time she needed credit and Applied for a Personal Loan to renovate her home, her application was denied. The reason given was that her CIBIL Score was 640 points, which is significantly lower than the required benchmark of 730. The rejection was concerning since Reena could not understand why her CIBIL Score had declined.

The Profile Details: She is a salaried employee of a limited company (listed as Cat B in the Company Category List of HDFC Bank), earning an income of ₹ 55k per month. Reena was married and lived in a family-owned residence.

Reena contacted us after applying to other lenders, such as YES Bank, and facing rejections. By now, she was in despair and urgently seeking a solution to her problem.

Steps to Finding a Solution

Retrieving her CIBIL Report: The first step was to ask her to retrieve her CIBIL report directly by applying for it on the CIBIL Transunion website. Most lenders accept this authentic credit record when issuing a personal loan. Each time a bank sends an inquiry to CIBIL to retrieve an individual’s score and credit history, the score decreases by 10 to 15 points. Unaware of this fact, Reena unknowingly damaged her CIBIL Score further by applying to various banks.

The Credit Entries According to her CIBIL Record:

• 6 inquiries were listed in her account for loans and Credit Cards.
• An auto loan that she had repaid was reflected as closed.
• A loan for a home appliance that was repaid over 6 EMI.
• A Personal Loan of ₹ 1 Lakh from an NBFC for which an amount of ₹ 10k was pending.

As she had never Applied for a Personal Loan, she realised that an error had damaged her CIBIL Score. An NBFC issued a Personal Loan for a tenure of 12 months, which was included in her account. The last instalment for the loan was pending, with an outstanding interest amount.

Raising a Dispute with CIBIL: If there is an error, individuals can contact CIBIL to raise a dispute at and fill out an online dispute form. CIBIL will assist the customer to follow up with the lender to solve the issue.

Contacting the Lender Who Had Reported the Personal Loan Dues: We advised her to make an official complaint to the NBFC, citing her details and the disputed Loan entry in the CIBIL report and asking for further information on the loan’s registration.

To her surprise, she was listed as the loan holder. Her name and personal details, such as her address, matched the NBFC data, but her mobile number was missing. When she called the mobile number, she reached someone in another location who said the number belonged to her deceased brother. With a registered complaint in hand, she approached the NBFC again to verify the loan taker, who, after further investigation, admitted to the error in the report that was sent to CIBIL.

Coordinating with CIBIL for Rectification: Reena then obtained a certificate from the NBFC stating that she was exempt from any financial obligation and that no amount was due to the NBFC on her behalf. This certificate was forwarded to CIBIL, which acknowledged it and disputed the status of the Personal Loan. Finally, there seemed to be an end in sight as the NBFC agreed that the loan had not been awarded to her.

Updating the CIBIL Record: Reena felt eligible to apply for her personal loan with all the relevant proof. However, this was not the end her CIBIL Score had increased slightly but remained below the required benchmark. The CIBIL Score would only be corrected when the NBFC sent the amended report to CIBIL, after which the Disputed Personal Loan account would be removed from her history.

Improving the CIBIL Score: Reena was advised not to apply for further credit until the disputed loan account was erased from her CIBIL history, which could take another fortnight when the NBFC updated the status with CIBIL. As soon as the disputed account was removed from her CIBIL history, her score increased, and she fulfilled her loan requirement with a Personal Loan from HDFC Bank.

What are the Learnings to Avoid CIBIL Errors and Keep Your CIBIL Score Intact?

• There are no shortcuts to a permanent resolution. Solve the problem in the right way, and avoid offers from agents who promise to rectify the situation quickly and ask for funds.
• Borrowers should routinely check their CIBIL Score before applying for credit to ensure that there is no wrong entry and that the score exceeds the benchmark required.
• Keep proof of all credit taken and keep track of repayment. Ensure that you obtain a no-dues certificate when completing a loan repayment.
• To maintain a good CIBIL Score, individuals should practice healthy credit usage, both secured and unsecured, and most importantly, make timely repayments.

The post Steps To Rectify a CIBIL Error: A Customer Story first appeared on Yourloanadvisors.

The Transunion CIBIL is considered the prime credit agency and maintains an exhaustive account of all credits. Understanding the CIBIL remarks is crucial as it empowers you to take control of your financial health. Keep regular updates and try to remedy the following observations in your CIBIL history that can lead to a score decline.

Enquiry. What is a Credit Enquiry?

Every time an individual applies for credit, the financer sends an enquiry to a credit bureau to check the Credit history and CIBIL Score.

The lender views the credit history to verify the customer’s behaviour with credit. Your previous loans and outstanding Credit Card Dues play a significant role in the lender’s decision to issue further credit. Being aware of this can help you manage your credit wisely and avoid any negative impact on your Transunion CIBIL score.

Based on credit management, the type of credit usage, and repayment tracks, CIBIL issues a numeric score with a maximum of 900 points. The CIBIL Score is a benchmark adopted by most lenders today. A score of 750 points and above is the required CIBIL Score for Personal Loan Approval and the minimum CIBIL score for Credit Card Approval. Maintaining a good CIBIL Score is not just a requirement, but a responsibility that can open doors to better financial opportunities.

What are the Effects of a Credit Enquiry on your CIBIL Score?

A hard enquiry by Banks can lower your Credit Score by 10 to 15 points, but if there are multiple enquiries within a limited period, this may increase to 20 points. Thus, if you apply to 4 Banks simultaneously for loans and Credit Cards, your score can be downgraded by 50 points or more. Besides your score downgrade, numerous requests make lenders cautious that you intend to get multiple forms of funding, which can be challenging to repay.

The Credit Card and loan application details remain on the Credit record for 2 years. However, if relegated by numerous enquiries, the effect on the score recovers within a year as long as the customer restricts the number of further applications.

It is a good idea for an applicant to make a soft enquiry before applying for further credit to ensure that the score is above the required benchmark and there are no surprises in-store, errors, or aberrations. A soft CIBIL enquiry made by oneself is not reflected in the credit history or affects the CIBIL Score. A soft enquiry is a credit check that does not affect your Credit Score, and it can be a useful tool to gauge your creditworthiness before making a formal application.

What is DPD or ‘Days Past Due.’?

The EMI for your loan will be presented to the salary account on a pre-designated date if there are insufficient funds, the EMI will be returned unpaid. The lender reports the return of the EMI to CIBIL and other Credit Bureaus, and the time for which the EMI remains unpaid is reported as DPD or Days Past Due.

Similarly, if you miss the payment due date of your Credit Card Bill, the number of days past due will be reflected in your Credit history until the minimum owed or complete bill is paid.

For example, if your Credit Card Bill Payment is due on March 5th, and you cannot pay even the minimum amount owing until March 7th, a 2-day DPD is reported.

What are the Effects on the Credit score?

If an applicant misses paying a credit bill or has insufficient funds in the account to clear the EMI on the due date, a bounce is recorded. It is the applicant’s responsibility to make good the return as soon as possible.

A delayed payment or a once-in-a-while DPD remark is insignificant; still, a string of delayed payments in the credit accounts portrays that the applicants are not repaying the dues owed timely, which can be due to financial constraints or a careless attitude. This can adversely affect the credit ratings, as no lender will want to give excess credit to an applicant unable to fulfil commitments timely.

If pending payments are not made within a month, the delays are classified as 30, 60, and 90-day buckets.

SUB denotes a Sub-Standard account:

If repayments are made after 60 or 90 days, an account is downgraded from Standard to Sub-Standard. Consistently delayed payments after due dates suggest that the applicant is under financial stress and unable to honour commitments.

The approaching EMI will further delay paying the pending EMI, making it difficult to get things in hand. The applicant’s intentions could be genuine, and the dues are paid within 12 months, but the applicant cannot maintain the payment schedule.

A healthy account moving towards a Substandard portrays that the applicant is under strain, with a medical emergency or shortage of funds, or has overindulged and cannot manage commitments.

CIBIL Implications of a Substandard Account.

The Credit Bureaus follow all credit tracks, continuously grading them according to the transactions. A substandard account signals financial stress and mismanagement, negatively impacting the credit score.

At this juncture, it is advisable not to apply for further credit, as Banks are apprehensive about giving funds to an applicant in a tight spot financially or who is not keeping up with the repayment schedule.

If your account is leaning towards a substandard category, now is the time to take action and prevent it from moving towards a Doubtful or Loss account, which can hinder your credit score and eligibility.

What Steps Can You Take to Salvage a Negative Account and Redeem Your Credit Score?

Credit is essential for acquiring assets and living comfortably today you can take the following steps to ensure your score remains intact. You can avoid the red flags in your credit record by paying attention to credit management. These red flags can include missed payments, high credit card balances, and multiple credit applications within a short period.

• Always keep the amount in hand for the approaching EMI, as a shortfall can be arranged with time. For example, if you are short of funds for your home loan, mortgage, or personal loan EMI, restructure your home loan or apply for a Personal loan Top-up.
• If the sum of your existing obligations is a strain, Apply for a Balance Transfer of your Personal Loan or Home Loan to an alternate Bank for lower interest and an extended tenure with a lower EMI.
• The due date for paying your Card Credit Bills must be on your calendar reminder. If you cannot clear the total amount, you must pay the minimum due to avoid a DPD on your CIBIL record.
• Before applying for credit, evaluate the terms and costs involved. For example, funds appended in a hurry through an App are costly and should be repaid promptly, as are overdue credit card bills, which attract an interest rate of over 36% per annum.
• You should view your CIBIL history regularly to ensure that your CIBIL Score is correct, that there are no errors or missed updates, and that credit is readily available if required. It is convenient to do a Free Credit Score Check Online.

In Conclusion

Current records suggest that consumerism is rising, with excessive credit usage compared to income and savings. This leads to restricted unsecured funding by Banks and an increase in rejection ratios, making it necessary to maintain on-time payment for all credit and a healthy CIBIL Score.

The post Understanding Credit Behaviour: The Impact of CIBIL Scores and Credit Enquiries on Financial Health first appeared on Yourloanadvisors.

Banks and financial institutions establish their rate list per the cost of funds with added margins and offer Secured and Unsecured credit to credit seekers as;

Personal Loans
Business Loans
Home Loans
Vehicle Loans
Loan Against Property

Borrowing comes at a cost; the principal charge to be paid by the borrower is the interest rate at which the funds are forwarded for the term or Tenure of the Loan. The Interest rate is the amount charged over the principal by the lender.

Will You Be Charged a Floating or Fixed Interest Rate for Your Loan?

Keeping in mind the fluctuations in the Base rate of the RBI Banks adjust interest rates accordingly holding the margins of the Bank steady. The changes most affect secure loans with extended tenures, primarily Mortgages for which the interest will be charged at a Floating rate. At the same time, Banks offer a fixed interest rate for limited-tenure loans.

What is a Floating Rate of Interest?

A Floating Interest Rate, as the term denotes, is a variable rate that fluctuates as per the base rate. The base rate is the rate the Federal Reserve or Reserve Bank of India will charge commercial Banks for further lending. Lenders can further publish their rates taking into account their cost of funds.

With a change in the base rate, and MCLR, the Floating Interest Rate will also fluctuate the EMI, and the monthly equated instalment will increase or reduce accordingly. Therefore a floating interest rate is usually reviewed every quarter, and the instalment changes will be affected.

A Floating Rate in interest is applied to Home Loans and Loan Against property, high-value loans allotted for increased tenures up to 25 years/300 months. Economic changes will affect long-term loans, and the lending rate will be adjusted.

Applicants can pay a fixed Interest Rate for mortgages for a limited period the fixed rate will be higher than the current Floating Interest Rate. The rate will be reviewed and adjusted according to the ongoing Rate of Interest.
The advantage of a floating interest rate is that it moves in tandem with the economy, providing relief to the customer with a lower instalment with rising inflation. In addition, refinancing a mortgage is also an option with the lowering of interest rates.

What is a Fixed Interest Rate?

Unsecure loans and short-tenure loans, such as Personal Loans, Vehicle loans, gold loans, and finance for commodities are forwarded at a fixed interest rate.

A fixed interest rate remains steady throughout the tenure and the EMI remains unchanged. It is not affected by changes in the MCLR and market fluctuations, as is a floating rate; it remains constant.

A fixed Interest rate is determined at the time of disbursal of the loan the loan agreement will reflect the details of the interest rate charged, the tenure for repayment and the EMI. The EMI will be presented to the Bank month on month through ECS.

The EMI will be deducted from the Bank account on a fixed date; this date remains unchanged for the entire tenure of the loan, and the instalment amount will be deducted from the account through ECS (electronic clearing systems.)
The advantage of a fixed interest rate is that there is no ambiguity regarding the total cost of the loan and the customer can plan the budget for the repayment tenure.

A fixed or floating interest rate is applied per the terms and conditions of the lender as per the governance of the Reserve Bank of India. The applicant has no choice but to go with the dictate though it always benefits the customer to know details of all the costs and charges and how they will be applied to the credit taken.

The Interest Rate is the primary charge understanding the nuances of how it works and how to calculate your Interest Rate is essential. Our EMI Calculator is a tool to help you know your EMI as per the Interest Rate and tenure applicable.

While borrowing, it is essential to know the costs and terms to check on the bandwidth to bear the cost of credit, as timely payments are a priority to maintain a good credit profile and CIBIL Score this will go a long way to ensure availability and smooth process of further credit when required.

The post How Does a Floating and Fixed Rate of Interest Work? first appeared on Yourloanadvisors.

Expenses are shared by all earning members contributing to the family coffers for monthly household expenses, vacations, celebrations, and emergencies, thus collectively bearing obligations.

The Credit Bureau of India Ltd, or CIBIL, as it is popularly known, maintains credit dealings of individuals and Pvt ltd and Partnership organizations as a record.

A CIBIL record has become an essential part of a Personal profile the credit dealings of an individual have much to say about the financial status and management skills, making it necessary to maintain a good score and an on-time payment record.

What is the Importance of a CIBIL Record?

The CIBIL identifies individuals and organizations with personal information, KYC details,income, banking,and credit lines. Data is matched, a CIBIL account is generated, and records of previous history and current repayment tracks are duly maintained.

Whenever an application for further credit is forwarded, the CIBIL details of the individual or organization are viewed to ascertain the credit worthiness of the applicant/organization.

Financers must check the CIBIL of all applicants before processing the request for any loan, credit card, or mortgage. Taking it a step further,the CIBIL of the family members living at the same address is viewed. If the applicant is married,the CIBIL record of the spouse will be closely monitored.

How Does The CIBIL Record of Your Family Members Affect Your Credit Prospects?

The CIBIL check of the family is essential as it affects the decisioning of the credit application.

The family evaluation applies to blood relatives and family members living at the same address.The personal credit history will be viewed,and delays or defaults in the repayment track of Personal Loans or credit card bills will affect the decision to issue further credit. Home Loans and mortgages being repaid jointly by earning members of the family must have a clear repayment track.

The spouse’s credit history will be closely evaluated if the applicant is married. The CIBIL Score of the spouse should be above the minimum benchmark required; Bills ofcredit cards used by the spouse as a Primary cardholder or an add-on card should be cleared timely. The family’s income must be sufficient to bear the cost of the total credit taken, as reflected in the CIBIL record.

If the Family owns a business, the CIBIL of the company and individual directors will be assessed before issuance of credit.The distribution of further credit will be based on the calculation and individual and company obligations. Any overdue loan or settlement track in the family is a deterrent.

Benefits of a Family Income and CIBIL

A family CIBIL check is always not limiting; it has advantages too. A spouse having a healthy CIBIL is an asset, giving the lender a sense of confidence.

Banks also entertain loan applications for Personal Loans, Home Loans, and mortgages with family members as financial co-applicants. When clubbing the income together,the CIBIL obligations are also clubbed, increasing the eligibility for the loan amount.

Home Loans and mortgages are usually a family endeavor whether it is buying a new home for the family or a commercial space for business expansion the finances are shared and the finance request is forwarded jointly. If married, the husband and wife will beco-applicants if the primary applicant is single a blood relative the parents or a siblingis an option. The income of all the earning members is counted and if the CIBIL is above the required benchmark, there is no stopping getting the loan amount needed.

Family members help each other to maintain financial stability, and repaying credit promptly will ensure a secure future.

The post Why is the CIBIL of Family Members Relevant? first appeared on Yourloanadvisors.

When applying for a personal or unsecured loan, the CIBIL Score determines a person’s creditworthiness. Getting an Instant Personal Loan without the CIBIL Score is achievable nevertheless, as more and more financial institutions introduce new programs and deals to increase people’s access to financial services.

A Brief Overview of the CIBIL Score?

A CIBIL check assesses an applicant’s eligibility for any loan without collateral (A cibil is checked for all loans with or without collateral). The Credit Score, also known as the CIBIL Score, is a three-digit numerical summary of a person’s or a company’s creditworthiness. The Credit Information Bureau (India) Limited manages this rating, which is used to determine whether a borrower will be able to repay the loan in full and on time. The CIBIL Score is comprised of four factors.

• Payment History- 30%
• Credit Exposure- 25%
• Credit Type and Duration- 25%
• Other Factors- 20%

When calculating this score, CIBIL receives credit information from all banks and financial organizations. A borrower who applies for a Personal Loan without providing income documentation, such as a pay stub, may still be approved based on their CIBIL Score (this statement is false). However the question is, is anyone eligible for funding if they have a low CIBIL Score for a Personal Loan?

What Does it Mean to Have a Low CIBIL Score?

Any CIBIL Score below 750 is typically regarded as having a low CIBIL Score ranging from 300 to 900. Personal Loans carry a higher risk for the lender because they are unsecured loans without a need for collateral. However, a high credit score demonstrates a history of on-time payments and attests to a person’s creditworthiness. This does not imply that obtaining a long- or short-term loan is impossible without the CIBIL Score.

Even if you lack a credit history, income documentation, or both, you can still apply for a loan even with a low CIBIL Score. Here are some choices to think about.

• Prove that your income is enough for loan repayment
• Ask the concerned lender to mark NH or NA in your credit report
• Ask for a smaller loan amount
• If possible, apply with a co-applicant
• Rectify the mistakes in your credit score
• Get collateral-based loans

Conclusion

The CIBIL Score fluctuates based on an individual’s most recent credit report and debt repayment. This implies that you can focus on raising your credit score before submitting a loan application. A credit score increase of several hundred points can be seen after just six months of the on-time bill and EMI payments. Other factors that can raise your CIBIL Score include having a variety of loans in your name having a low credit card utilization rate, retaining old credit accounts, etc. Once your scores rise, you can apply for a Personal Loan based solely on your score without providing a pay stub.

Are you still wondering about the Minimum CIBIL Score for Personal Loans? Or do you need more information on getting a Personal Loan without any effective CIBIL Score? Get in touch with the experts at Your Loan Advisor now!

The post How to Get A Personal Loan Without CIBIL Score first appeared on Yourloanadvisors.

Trying circumstances or unplanned budgetary spending may lead to delays in Loan Repayment or Credit Card spending an applicant unable to pay regular EMI or clear Credit Card bills will incur additional interest on the amount due to the Bank or NBFC.

Reminders are issued regularly to the applicant to clear the pending dues in case of further non-payment, there will be calls made on behalf of the Bank team or collection agencies. It is in the applicant’s interest to make the payment as soon as possible as there is no running away.

Explanation of CIBIL Terms Closed and Settled

If the applicant pays the entire amount due to the lender with interest accumulated on the principal loan amount, pays all credit card dues & chooses to give up the card the Credit Card or loan account will be treated as Closed. Having received the complete payment the parent Bank or NBFC will issue a no dues letter to the borrower and update records accordingly.

Under the circumstances, if the borrower cannot pay the pending dues. In that case, the collection agents of the Bank will offer the option of a settlement. As per this option, a discount is provided to the loan holder on the total outstanding, which could be a waiver of the interest due on the principal debt.

Upon receipt of the amount, the lender will terminate the credit line. Further interest will not be charged on the unpaid dues & the applicant will no longer be pursued up to pay the balance. The account will be marked as settled in the records of the Bank/ NBFC providing the facility.

Effect of the terms Closed and Settled on the CIBIL

The CIBIL of the borrower will be updated as per the following information.

• The Loan amount issued.
• The issue date of the loan /activation date of the credit card.
• The payment history: timely payments, delayed payments, bounces, and overdue.
• The final status of the Loan as Closed or settled

The Effects of a Closed/Settled Credit Account

Paying back the total loan amount & closing the loan is a wise resolution, as the Bank/NBFC will mark the Loan account as repaid and a nil balance all previous late payments may be viewed as a temporary aberration, as a period of financial problems due to an emergency. The applicant can rebuild a credit standing &look forward to a fresh start.

The CIBIL Record of the applicant will be updated as the loan account is closed: showing the loan as fully paid back to the lender & giving the date of complete repayment. The CIBIL Score will record an upswing after the full payment. The track of the delayed payments will show permanently in the record of the loan holder, but the final closure will mitigate the late payment record to some extent.

A Credit Card or loan settlement is not recommended as the settled tag reflects that some amount is still due to the lender. Collection agents in a bid to recover the amount from the customer, will sometimes mislead the customer to believe that with a partial amount paid back the total loan obligation is over but this is not the case.

An ensuing settlement will always reflect the unpaid balance as overdue, further negating the CIBIL Score. Every time the applicant applies for further credit the CIBIL History is viewed, and the settled tag will be encumbering. Therefore, planning your budget and keeping a cushion for emergencies is advisable. Apply for additional credit in advance if short of finances and avail of Loan insurance that will help in the repayment of EMI during a difficult period.

Every effort should be made to repay all dues and close the account successfully as a settled tag will continue to haunt the CIBIL & the credit history of the individual for times to come.

The post What is The Difference Between Settlement CIBIL Terms Settled & Closed? first appeared on Yourloanadvisors.