CIBIL stands for Credit Information Bureau (India) Limited name changed to TransUnion CIBIL Ltd which is a part of “transunion” an American multinational group. It maintains credit files of around 600 million individuals and 32 million businesses. TransUnion is one of four credit bureaus operating in India and is majorly trusted by banks and Financial institutions due to its greater reliability and popularity in the Indian financial sector.
From the above it is clear that CIBIL is an agency that mainly collects and maintain credit information of customers and uses it for information purposes of lenders, borrowers and ultimately the economy.
Now let us understand that how CIBIL works and why it is so important?
i)The banks and financial institutions(referred to as lenders) operating in India provides information pertaining to their clients credit history to CIBIL whether they had repaid the loans, credit cards bills, etc on time or had defaulted in either repayment /interest payment.
ii) Based on such credit information received from lenders who had certain credit history with customers, it uses it for further dissemination to further lenders for credit evaluation process because whenever a prospective customer approaches any lender for availing credit then such lender prima-facie asks that customer to submit the CIBIL report in order to analysis their credit worthiness.
iii) CIBIL does the rating of both Institutional and Individual Customers based on their credit history and rate them based on CIBIL’s internal rating parameters.
iv) It must be noted here that the CIBIL score is not only useful for the lenders but also for the customers in planning their credit requirements accordingly.
v) A CIBIL score is basically a three digit numeric score of your credit history ranging from 300-900.It is calculated by analyzing the credit history of the borrowers. The Score indicates the ‘probability of default’ by the borrower in future.
vi) The lower the score the poor it is and closer the score to 900 the higher are the chances that your loan application will be approved. It is important to note that most of the individuals loans are granted with score greater than 750 which is considered to be a fair score in most of the cases by the lenders.