Why is it Important to Check Your CIBIL Report?

As kids, we were always worried about our academic reports that illustrated our performance at school and college. Things have not changed even today with report cards being replaced by CIBIL reports and these reports also have the same effect on us. For the uninitiated, a CIBIL report determines the financial history of an individual. Every individual is aware of the fact that this report has an important role to play in his or her financial journey. But, here the question is how important is this report for an individual? How much does this report matter and why does this report matter to the bank? Here, we will try to get answers to these questions:

What is CIBIL Score or Report?

Credit Information Bureau Limited is India’s very first credit information agency which began operating in the county in August 2000. This bureau provides credit information and maintains the records of payments to individuals. The CIBIL report is a numeric synopsis of the credit history of an individual. It helps an individual in getting his or her loan applications duly evaluated and even approved. Financial organisations and banks depend on the CIBIL scores of individuals for evaluating potential risks involved in lending cash to consumers and even for mitigating losses. The CIBIL score has an important role to play in the financial system of India. It helps consumers in securing credit faster and also helps the loan providers in managing their businesses in the most efficient manner.

Calculating CIBIL Scores

There are many factors that are taken into account when calculating CIBIL scores. These factors include the payment history of an individual, the type and the number of loan accounts, the length of a person’s credit history and outstanding debts. Post calculating the CIBIL score; it is presented to the financial organisations and banks for proper evaluation. The credit institutions and banks have their own benchmarks on what constitutes a good CIBIL score. These parameters differ from one bank to another. The factors which do not have any effect on the CIBIL scores of individuals include education, savings account, race or ethnicity, gender and income.

The Significance of CIBIL Score

The CIBIL credit report of an individual or a company is one of the most important resources for financial organisations and banks to evaluate the individual’s or the company’s credit worthiness in order to make lending decisions. There are many reasons why the CIBIL score is highly valued, and the reasons are as follows:

• The report plays an important role in safeguarding the financial journey of an individual. Almost all lending organisations depend on this report for verifying the creditworthiness of a person or a company. This report helps the lending organisation and the borrower both in understanding and identifying his/her credit history thoroughly and clearly.

• The report helps in measuring the ability of a borrower of repaying the loan. Lending organisations go through this report for measuring the amount of loan that an individual is at present liable to repay and whether any loan can further be afforded by him.

• This report is based on the month-on-month information and data of the type and number of loans that an individual has taken. In a way, the report facilitates an individual to scrutinise his or her entire credit history and gain clarity about the areas where he/she can improve.

• The payment history for loans serves as the main component of the report displaying the loan portions that have been cleared and the current debt status of an individual.

• The report also helps in ensuring greater transparency while streamlining the loan approval procedure as lenders and customers get easy access to similar credit information. The customers are well aware of the reasons why their loans have been rejected and the lenders, on the other hand, can make faster decisions on the cases of customers they can lend loans to without having to spend money and time on carrying out background checks.

Conclusion

The market for loans has completely transformed in recent times with the easy availability of credit information of individuals through CIBIL score. Usually, lenders have a close look at these scores and reports before deciding on the loans. So, if you have plans of getting loans in the future, it is important for you to ensure that you have a neat and clean credit history for a clear CIBIL report.