CIBIL:- CREDIT INFORMATION BUREAU (INDIA)LIMITED

CIBIL:- CREDIT INFORMATION BUREAU (INDIA)LIMITED

                     

 

                Credit Information Bureau (India) Limited is India’s first Credit Information Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by member banks and credit institutions, on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications. CIBIL was created to play a critical role in India’s financial system, helping loan providers manage their business and helping consumers secure credit quicker and on better terms

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                                                                                                                                                                                                                                                                                                                                                                                             .                            The CIBIL credit report is important to both the lender and the borrower. As a borrower you can use a good CIBIL credit score to get favourable terms of credit including lower interest rates, saving a bucketful of money. For the lender a credit report reduces the risk and cost. The lender is then more competitive in his pricing and willing to pass on the benefit to his premium customers – the ones with higher CIBIL score and lower default risk.

Credit has become an essential part of our life today. Our living and spending patterns are distinctly different from our previous generations due to access to credit and the luxuries it buys. Lenders are always on the lookout for a good borrower – one who will not default. A credit report has become an important part of the due diligence that the banks conduct to judge the borrowers repayment capacity.

       

History and origin[edit]                                             

In the late 1990s, the need for a credit information system was increasingly felt in order to enable informed credit decisions and aid fact based risk management. It was also imperative to arrest growth of fresh non-performing assets (NPAs) in the banking system through an efficient system of credit information on borrowers as a first step in credit risk management. In this context, the requirement of an adequate, comprehensive and reliable information system on the borrowers through an efficient database system was keenly felt by the Reserve Bank of India and the Government as well as credit institutions. A Working Group with representatives from select public sector banks, SBI, ICICI, Indian Banks' Association and Reserve Bank was constituted by the Reserve Bank in the year 1999, to explore the possibilities of setting up a Credit Information Bureau (CIB). The Working Group had recommended setting up a CIB under the Companies Act, 1956 with equity participation from commercial banks, FIs and NBFCs registered with the Reserve Bank. As per the recommendations made by the Working Group, Credit Information Bureau (India) Ltd., (CIBIL) was set up in January 2000. The Credit Information Companies (Regulation) Act, 2005 was subsequently passed with a view to regulating credit information companies and facilitating efficient distribution of credit and for matters concerned or incidental to it.It has many of financial commitments.

Objectives[edit]

For credit grantors to gain a complete picture of the payment history of a credit applicant, they must be able to gain access to the applicant's complete credit record that may be spread over different institutions. CIBIL collects commercial and consumer credit-related data and collates such data to create and distribute credit reports to its Members which are credit institutions and banks in India. CIBIL’s over 900 strong member base includes all leading public & private sector banks, financial institutions, non-banking financial companies and housing finance companies.

CIBIL’s products, especially the Credit Information Report (CIR) and CIBIL TransUnion Score are very important in the loan approval process. Once the loan provider has decided which set of loan applicants to evaluate, it analyzes the CIR / Score in order to determine the applicant’s eligibility. Eligibility basically means the applicants ability to take additional debt and repay additional outflows given their current commitments. Post completion of these first 2 steps the loan provider will request for the applicants income proof and other relevant documents in order to finally sanction the loan.

The CIR and Credit Score not only help loan providers identify consumers who are likely to be able to pay back their loans, but also help them to do this more quickly and economically. This translates into faster loan approvals for consumers. An individual with a credit score above 750 has better bargaining power with the lenders, since he is perceived as a responsible borrower.^[4] Since consumers can now access their Credit Scores and CIRs directly from CIBIL at the cost of INR 470,^[5] they can see for themselves how they are perceived by the lenders before applying for a loan. Hence, CIBIL empowers both loan providers and individuals to see their financial and credit history more clearly and hence, take better and more informed decisions

     Credit Score

DEFINITION OF 'CREDIT SCORE'

          Your credit score is a three-digit number that is used to predict how you will pay your bills. The score ranges from 300-850 and is calculated using your credit history information from your credit report.                                                                             .             When you make an application for credit, the creditor or lender uses your credit score to quickly make a credit/no-credit decision. This same decision can very well be made by simply viewing your credit report, but the credit score makes decision-making easier and less subjective.                                                                                                                                   .              A statistically derived numeric expression of a person's creditworthiness that is used by lenders to access the likelihood that a person will repay his or her debts. A credit score is based on, among other things, a person's past credit history. It is a number between 300 and 850 - the higher the number, the more creditworthy the person is deemed to be.

INVESTOPEDIA EXPLAINS 'CREDIT SCORE'

A FICO score is the most widely used credit scoring system. FICO is an acronym for Fair Isaac Corporation, the company that provides the credit score model to financial institutions. There are other providers of credit scoring systems as well. Consumers can typically keep their credit scores high by maintaining a long history of always paying their bills on time and not having too much debt

                                                                                                         SIGNIFICANCE OF LENDER

              What would you do if you were hiring a new employee - a maid servant, for instance? Besides asking about her skills and negotiating the payment to be given to her, you would ask her for some references. This is the due diligence we conduct on a person who works at our homes. Surely we do not expect the bank would lend us lakhs of rupees without due diligence. Besides asking details in the KYC (Know Your Customer) form, they want a third party reference from other lenders which they get via your credit report. According to RBI, housing loans constitute more than 50 per cent of the retail loan portfolio of banks. These big ticket loans like home loans get more scrutiny than usual due to the large amounts and the long repayment period. Scrutinising a credit report is the fastest and the most cost efficient method that helps a lender make a lending decision.

SIGNIFICANCE TO BORROWER

A CIBIL credit report is equally and more important to a borrower today. The credit report is a summary of all his credit related activities and also a financial report card which indicates his financial health. It also determines his “reputation” as a borrower. A good credit score could mean a lower rate of interest and a saving of several thousand rupees. For instance Rakesh Soni took a home loan of Rs 50 lakh for a period of 20 years. He had an excellent credit score of 830. He negotiated with his bank to bring down the rate of interest by 0.5% - from 10.5% to 10% - on the basis of a high credit score. Over a period of 20 years he saved over Rs 4 lakh, a substantial amount by any standards.