Things you didn’t know about your CIBIL score

In my experience, I have deciphered that the term credit has a rather negative connotation especially for Indians. Having said that, millions of Indians survive and get by on credit. Loans and credit cards are forms of credit that we incur on a monthly basis.

I have milled, punted and existed in the financial sector for few years and hence know that while everyone who has taken a loan or credit card, or those in the financial domain know about CIBIL, here are a few things many didn’t know about CIBIL:

1. My CIBIL score will go up as soon as I close a card: “I’ve closed my cards, why is my CIBIL not improving?” That’s a question a lot of people have asked. Closing credit cards only means you will not be utilizing those cards in future. Hence, you are not likely to contribute to your credit utilization rate.

2. Paying the minimum amount each month is safe: It’s not. If you think paying the minimum amount will keep the banks, agents and CIBIL happy, you’re mistaken. Just being able to pay the minimum each month denotes that you are unable to afford enough money to pay your bills. It gives the impression that you do not make enough money, or have no financial planning abilities.

3. Taking a lot of credit will increase my CIBIL score: WRONG! Applying for too many loans and cards will give the impression that you are greedy for credit. It also can set off warning bells as there have been cases of people taking large amounts of credit and then vanishing without a trace.

4. Any credit is good credit: Again, wrong. Loans taken for acquiring houses, vehicles, an education and the like are considered good and worthwhile. However, credit cards and personal loans are not considered ‘secure’. Too many of these can harm you CIBIL rating.

5. I am a guarantor for a friend who never repaid his debt; that doesn’t affect my CIBIL: Well, it does. The fact that you are willing to stand as a guarantor for someone denotes that you are assuring a loaning authority that your friend will repay their debt. If the person you stand as a guarantor for defaults, you are equally considered a defaulter. As a result, this affects your CIBIL score as well.

Credit is a two-way lane. Those who do not wish to take a credit card or a loan stand to not gain any key points in terms of credit score and those who do, stand to get a bad credit rating if they miss payments. CIBIL – the be all and end all for Indians looking to take loans and credit cards – is a well known, and to an extent, feared authority that maintains records of an individual’s credit. CIBIL’s credit information report could make or mar one’s loan or credit card application.

It is vital for one to be attentive towards aspects of CIBIL such as the ones covered above to be able to take informed decisions and maintain a good credit score.