CIBIL SCORE, CREDIT INFORMATION REPORT & CREDIT INFORMATION COMPANIES (CICS) IN INDIA

Your CIBIL Score is an evaluation of your credit history for determination of your loan eligibility. With many applicants looking for a loan, banks were increasingly finding it difficult to carry out intensive background checks regarding the credit-worthiness of the applicant. A Credit Information Company (CIC) is an independent organization licensed by the Reserve Bank of India (RBI) that signs up banks, NBFCs and financial institutions as its members and aggregates data and identity information for individual consumers and businesses from its members. Credit reporting is very important in today’s financial system and is considered a primary factor while evaluating the credit worthiness of customers and monitoring the credit circumstances of consumers and businesses. This information enables lenders to function more efficiently and at a lower cost than is otherwise possible.

Credit Information Companies (CIC’s): CIC or Credit Information Companies are an independent third-party institution that collects financial data regarding loans, credit cards and more about individuals and shares it with its members. Banks, Non-Banking Financial institutions are usually the customers of Credit Information Companies. The Credit Card Company collects financial information about all these individuals and forms a credit report based on their financial history. This credit report plays a very important role as it helps banks and other financial institutions determine the creditworthiness of an individual applying for a loan or credit card with them.

Credit Information Companies Regulation Act (CIC Act): Credit Information Companies in India are licensed by the Reserve Bank of India and governed by the Credit Information Companies Regulation Act, 2005 and various other rules and regulations issued by the Reserve Bank of India. The CIC Act, 2005 is a legislation that is enacted by the Government of India, in order to regulate the actions of the Credit Card Companies in India. Following the CIC Act, 2005, the RBI and the Government of India enacted the CIC Act, 2006.

How do Credit Information Companies work? Credit Information Companies comply public data, credit transactions and payment histories of individuals and companies. The data is collected from various authentic sources and the companies form a credit report based on the collected data. The credit companies also create a score based on the credit report of an individual or an organisation. Usually credit score ranges between 350 to 850, anything above 750 is considered as a good score. The credit report and credit score plays a very important rule in an individual’s financial journey as banks refer to this report and score to decide the creditworthiness of an individual before granting a loan or credit card.

Who are credit information company’s customers? Credit information companies service individuals (wanting to access their own credit reports), lenders who access credit reports of their existing customers and prospective customers who are applying for new loans or credit cards and businesses who are borrowing from banks and financial institutions to keep a check on their reported credit history.

What information does a credit information company provide? A credit information company provides:

To the Lender:-

• A consolidated view of a consumer to a lender across all reported loans held
• The repayment history as reported by the subscribing lenders
• The identification information, address and other demographic information as reported by member institutions
• Topline indicators (derived attributes) based on the information provided by the data contributing members

To the individual/business/consumer:-

• An ability for the consumer to access his credit record as seen by the lender to ensure that the information reported is accurate.
• Keeping a tab on one’s credit worthiness and repayment track record.

Who should buy a credit report? Every individual who is looking to borrow should ideally go in for a credit report. One should scrutinize the same for errors and keep checking his report from time to time. Ideally, one should pull out a credit report every quarter. CIBIL will provide you one CIBIL Score and Report without any charge once a year. You can check free CIBIL Score from many websites such as www.bankbazaar.com or www.paisabazaar.com  for the assurance of your credit record.

How do I correct my credit report? In case an individual finds that his credit report is not updated, he can approach the respective financial institution or credit bureau to update the credit reports. The financial institution or credit bureau should take appropriate steps to update the credit information within 30 days after being requested to do so. The credit bureau can make changes in the individual’s credit information only after such changes have been authorized by the concerned financial institution.

Credit Information Companies in the country

This credit rating would enable the bank or the institution to take a decision on whether they should lend money to the said individual or not. Herewith are a list of 4 credit information companies. These are approved by the Reserve Bank of India.

1.CIBIL: CIBIL which stands for Credit Information Bureau (India) Limited, is an ISO 27001:2005 company. A first of its kind, it is India’s premier Credit Information Company (CIC). Founded in the year 2000, it has established itself as a key participant of the Indian financial system. The company records credit related information of individuals as submitted by registered member institutions. CIBIL works in association with Trans Union International Inc. and Dun and Bradstreet.

CIBIL has two major segments viz. the Consumer Bureau and the Commercial Bureau. The Consumer Bureau maintains credit records of individuals while the Commercial Bureau maintains credit records of institutions/companies.

CIBIL Shareholding Pattern: As India’s leading CIC (Credit Information Company), CIBIL enjoys considerable clout in the Indian credit system. CIBIL has a diverse ownership structure consisting of well-known banking and non-banking companies. Its major stakeholder is Trans Union International Inc. with about 66% of the total share. The remaining 34% is held by 8 other parties with stakes ranging between 1% to 6% each.

CIBIL Trans Union Score: An individual’s or company’s credit history is evaluated to generate a Credit Information Report (CIR) from which is derived a credit score known as the CIBIL Trans Union Score. This report and score form an integral part of a lender’s credit approval process. Credit scores range between 300 and 900. The higher the score, the more creditworthy the borrower is, which translates to quick approvals and better interest rates.

CIBIL provides credit reports and scores to those who inquire for them. This includes individuals, institutions and lenders. When an application for a loan or credit card is submitted, lenders check the applicant’s credit scores to ascertain whether it satisfies eligibility criteria. In general, a score of 750 or higher is considered good.

Analysis of CIBIL Score:

Score	Analysis
-1	Insufficient Credit History: Borrower has no history of borrowings with any member of CIBIL.
300 – 549	Bad Score: Credit cards and loans are not provided to people in this slab.
550 — 649	Doubtful Score: In general most of the banks/FIs  are not provided credit cards and loans to people in this slab.
650 – 699	Fair Score: Banks/FIs may provide loans on it but options would be very limited.
700 – 749	Good Score: This is intermediate range of scores and will allow to borrow from various lenders, however banks may refer to overall financial position.
750+	Excellent Score: The score above 750 considered to be Excellent Scores and will help getting loan or a credit card with ease.

 

THE CIBIL RANK: The CIBIL RANK, summarizes your CCR in the form of one number. The rank is similar to the CIBIL Score provided for individuals. However, it is provided from a scale of 1 to 10, where 1 is the best rank that can be achieved. The rank is now available for companies with current credit exposure of up to Rs. 50 crores.

Most importantly, CIBIL Rank indicates your company’s likelihood of missing payments, which is one of the key factors considered by a lender while evaluating a loan application. The closer your rank is to 1, the better are your chances of securing a loan.

A CIBIL CCR is a record of your company’s credit history. This is created from data submitted to CIBIL by lending institutions across India. The past payment behaviour of a company is a strong indication of its future behaviour. It is therefore important to understand that the CCR is heavily relied on by loan providers to evaluate and approve loan applications.

CIBIL Score 2.0: The CIBIL Score 2.0 is a new, updated version of CIBIL Score which has been designed keeping in mind the current trends and changes in the consumer profiles & credit data. Banks are gradually switching to the new version and you may find a difference in the new version when compared to the earlier version (i.e., the score 2.0 may be lower than the earlier version). Please note, the score displayed on the dashboard is the earlier version. However, the difference in the Credit Score does not impact the credit decisioning during the Loan approval process as both the versions of the score may have a different score eligibility cut off while processing the loan application. Lenders may have a different loan eligibility criterion depending on the version they are using.

The CIBIL Score 2.0 also introduces a risk index score range for those individuals who have a credit history of less than 6 months. These individuals were categorized under the category of “No History – NH” in the earlier version. The score range is from 1 – 5, with 1 signifying “high risk” and 5 signifying “low risk”.

Score 1	Score 2	Score 3	Score 4	Score 5
High Risk		Medium Risk	Low Risk

 

 

CIBIL SCORE 2.0 SUMMARY AND INTERPRETATION
Score & Index	Interpretation (i.e., for whom does this score reflect)
NA or NH	Individual has no credit history. Hence no information has been reported to us. Individual’s Credit Report may only have inquiries i.e.  banks have accessed the individual’s credit report but have not sanctioned any loans. No credit information has been reported to us for the individual in the last 24 months
1-5	Individual has a credit history of less than 6 months Higher the index, lower the risk
300-900	Individual has a credit history of more than 6 months and the credit history has been reported to us within the last 24 months Higher the score, lower the risk

Factors Affecting your Credit Score: Though you are unaware of the effects of your actions, you may still be contributing for your credit score getting reduced. Here is a list of few actions that directly contribute to lowering your credit score.

• Late Payment: Even a single delayed payment made after the due date can impact your credit score. Sometimes, you tend to ignore the payment and use the money for other emergency reasons. However, this delay in payments can make you look like an irresponsible person when it comes to handling finances and contributing to a reduction in the score.
• High Utilisation of Credit Limit: Lenders set a credit limit for every consumer after considering his income and the debt-service ratio. The credit limit says how much money he can spend on repayments after considering the other commitments he has.  If you utilise more than 50% of your credit limit on a regular basis, your credit score can be at stake. It shows that you are not good at managing finances and expenditure. To keep up with a good credit score, you must make sure to keep your expenses within 50% of your credit limit.
• Multiple Credit Applications: You may have an emergency requirement for cash and have applied for a credit facility with multiple lenders within a short span of time. This will portray you as a person who is desperate for money. When each of these lenders sends an enquiry request to credit rating agencies, such enquiries get recorded in your credit report leading to lowering of your score.
  Multiple applications and enquiries mean you are hungry for credit; it also means you may not be able to repay if a loan is granted.

Some other reasons for Low CIBIL Score: These are the important reason for low CIBIL Score:

• Cheque Bounce/ dishonors;
• Irregular Loan Payments;
• Defaulting on Credit Card bills / making late payments or consistent part payments;
• Defaulting as a Guarantor.

Five Tips to Improve your CIBIL Score: It is important to have a high CIBIL score as it helps banks decide whether to extend a certain amount of credit to you or not. A good CIBIL score increases your chances for an easier credit approval. Here are five simple and effective ways that will help you improve your CIBIL score.

1. Check and Monitor your CIBIL Score: It is better to know your CIBIL Score regularly, as it will give you an idea about your credit status. You can monitor your CIBIL score by applying for subscription based credit score. In addition, you can also track your score by using free CIBIL score report from the leading credit bureaus in India. Another reason to check your CIBIL score is to see whether there are any errors or false records about your credit account.
2. Review your credit report: In addition to monitoring your CIBIL Score, it is advised to check your credit report as it might have errors. It is better to review your credit report regularly, as you can rectify them on time.
3. Limit your Credit Usage: Maintaining a discipline when it comes to credit card usage is of utmost importance. Make sure you are not exhausting your entire credit limit. Until your CIBIL score reaches 750, it is advised to not spend over 50% of your credit card limit.
4. Increase your credit limit: A credit limit is the total amount you can borrow through the card. Request your credit card issuer to increase your credit limit.
5. Make payments on time: In order to prove that you can manage your debt efficiently, make sure to pay all your dues on time. Avoid delays in paying your bills to maintain a good credit. Never pay partial amounts as it may showcase you as undisciplined credit payer and edge down your CIBIL score.

Advantages of Higher CIBIL Score: Followings are the main Advantages of Higher CIBIL Score to individual/business  consumer:

• Quick processing of loan and credit card applications;
• More negotiating power;
• Easy availability of credit such as Loans;
• Assurance of Safety.

2.Equifax Credit Information Services (ECIS): Equifax Credit Information Services Private Limited (ECIS), a credit bureau/consumer credit company (CIC) licensed by the Reserve Bank of India (Certificate of Registration, under the Credit Information Companies Regulation Act 2005, was obtained in March 2010) is the Indian arm of Equifax Incorporated, a consumer credit reporting agency, founded in 1899 in the US with its operations currently spread across 15 countries. ECIS is a joint venture between Equifax Inc and seven Indian financial institutions namely, Bank of Baroda, State Bank of India, Kotak Mahindra Prime Ltd, Bank of India, Sundaram Finance Limited, Union Bank of India and Religare Finvest Limited. With around 1300 registered members, Equifax is currently headquartered in Mumbai with branch offices located in Delhi and Bengaluru.

3.Experian: Experian is one of the world’s foremost credit information services companies offering a wide range of business tools to their clients based all across the globe. Widely known to be among the planet’s most innovative companies according to Forbes magazine, the company is licensed by the Reserve Bank of India and assists clients by providing a wealth of analytical as well as data tools, which help them manage their businesses in a more efficient and effective manner. Experian is also the first credit information company to be licensed by Credit Information Companies (Regulation) Act 2005 (CICRA 2005) and currently operate two firms within India, namely:

• Experian Credit Information Company of India Private Ltd
• Experian Services India Private Ltd

Experian has tied up with more than 2,900 financial institutions, counting public sector banks, telecom companies, micro finance institutions as well as non-banking financial companies. The company, which is ISO 27000:2013 certified, provides its customers with credit information as per guidelines issued by the Credit Information Companies (Regulation) Act of 2005.

4.CRIF High Mark: CRIF High Mark Credit Information Services Along with providing Credit score and report to consumers, the company caters to all borrower segments such as MSME and Commercial borrowers, Retail consumers, Microfinance borrower. The most popular of these is CIBIL, which also provides you information on your credit rating for a charge. Most banks and lenders prefer to go to credit rating companies, to ensure that there are no defaults in the future and the customer is credit worthy. This is particularly true for larget ticket size loans like home loans, credit cards and personal loans. There could be in the future other credit card companies that spring-up from time to time.

RBI DEFAULT LIST

Introduction: Pursuant to the instructions of the Central Vigilance Commission for collection of information on wilful defaults of Rs. 25 lakhs and above by RBI and dissemination to the reporting banks and FIs, a scheme was framed by RBI with effect from 1st April 1999 under which the banks and notified All India Financial Institutions were required to submit to RBI the details of the wilful defaulters. Wilful default broadly covered the following:

1. Deliberate non-payment of the dues despite adequate cash flow and good networth;
2. Siphoning off of funds to the detriment of the defaulting unit;
3. Assets financed either not been purchased or been sold and proceeds have been misutilised;
4. Misrepresentation / falsification of records;
5. Disposal / removal of securities without bank’s knowledge;
6. Fraudulent transactions by the borrower.

Accordingly, banks and FIs started reporting all cases of wilful defaults, which occurred or were detected after 31st March 1999 on a quarterly basis. It covered all non-performing borrower accounts with outstanding (funded facilities and such non-funded facilities which are converted into funded facilities) aggregating Rs.25 lakh and above identified as wilful default by a Committee of higher functionaries headed by the Executive Director and consisting of two GMs/DGMs. Banks/FIs were advised that they should examine all cases of wilful defaults of Rs 1.00 crore and above for filing of suits and also consider criminal action wherever instances of cheating/fraud by the defaulting borrowers were detected. In case of consortium/multiple lending, banks and FIs were advised that they report wilful defaults to other participating/financing banks also. Cases of wilful defaults at overseas branches are required to be reported if such disclosure is permitted under the laws of the host country.