Planning For It!

Understand Your CIBIL Score

image Have you ever approached a bank for loan? Are you planning to approach a bank for loan in the days to come? Please remember whenever you approach a bank for loan, it is essential that you should have a clean history of credit. What do I mean by clean history? If you have availed any loan in the past, the credit payment history must have been done on time and there should be no delinquency.


Banks and Financial institutions run a report on you before granting a loan to you. This report is known as credit information report. In India, credit information report is run on one of the credit bureaus approved by RBI. As of now, India has four credit bureau i.e. 1) CIBIL (Credit Information Bureau of India), 2) Experian, 3) EquiFax and 4) High Mark. Effectively CIBIL is the bureau which is most widely used by banks and financial institutions.

How do banks use your CIBIL report? When you approach a bank for loan, the concerned bank asks you for certain information like PAN card/passport/voter id/ration card/driving licence details, name, date of birth, gender, address and telephone number. Some of the banks may ask for photo copy of your credit card information as well. Using all these information, a bank runs a report on you in the CIBIL system. The report gives a bank history of all the loans availed by you (Reported by various financial institutions from time to time).

The report generated by the bank has a critical component called as CIBIL Transunion score. This score gives an insight into probability of a customer defaulting in days to come i.e. one year. There are three score value generated by CIBIL system 1) -1 (Minus 1), 2) Zero and 3) Score range from 300 to 900.Let us understand what these score values communicate. A credit score of -1 means that a customer has no credit history. This further means that if a customer has no credit background but his details are available in the CIBIL system, the customer gets a score of -1.


How can a customer have details in CIBIL system when a customer has not availed loan? This happens when a bank/financial institution makes an enquiry on the customer. Please note that there are two exceptions to -1 score. If a customer is an authorized user of a credit card, ex. husband giving an ‘Add-On’ card to wife, the customer (Wife) will get a score of minus 1. Also if a customer has credit history older than 24 months, the score will be -1. This means that all the loans availed by the customer have been closed 24 months before the date of reporting of loans.

A customer gets a score of zero, when his credit history is less than six months. In other cases, a customer gets a score between 300 to 900. Please note that higher the score less is the probability of default. Five broad factors decide the score of a customer are 1) Amount overdue and days past due, 2) Credit Utlilisation, 3) Credit Mix, 4) Number of Enquiries and 5) Age of an individual

Every customer should avoid delayed/non payment of his credit facilities. To improve score, the customer should ensure that he pays on time. There is no ideal score but a score better than 800 is considered good by banks and there is high possibility of loans getting sanctioned, of course subject to certain checks at bank's end.


About Auhor

Vivek Sharma is a faculty at Institute of Financial Markets, Vashi. He is CFP, M.A. in Economics, MBA Finance and Fellow in Life Insurance. He can be contacted at

Published Sep 08 2011




Ankit said:

Very nice article. I was looking for some info about how banks do the credit history analysis. Glad i found this article

September 26, 2011 2:00 AM

madanbhai jagannath nayak said:

These draconian powers given by RBI to the banks play with a person’s fundamental right to the good reputation, Formulation of such a definition “willful defaulter” for characterisation of persons pre-eminently falls within the exclusive dominion of the legislature and “RBI cannot and ought not to have arrogated the right to it especially when stigmatisation brings adverse legal and social consequences on a citizen including his fundamental right to a good reputation. The entire process set up by RBI is extremely ad hoc, haphazard and in the name of controlling the instances of willful defaulter puts oppressive and absolute powers in the private hands of the banks and FIs without any recourse for the affected person to judicial proceedings and without legislative supervision.

Before reporting default status of a credit card holder/ any other loan holder to the Credit Information Bureau of India Ltd (CIBIL) or any other Credit Information Company authorized by the RBI, why should CIBIL or any other Credit Information Company not try to settle the issue or intimate the borrower and ask for borrower's clarification before ex parte spoiling his credit rating publically? How can the Credit Card providers force the consumers to default first and charge any amount on account of defaults thereafter from the consumers?

moreover how these cibil or other organizations call customers ex parte DEFAULTERS without offering their fundamental rights to defense?

editor- madanbhai (thane pratibimb- news agency) contact- 09892159711 email-

September 26, 2011 2:53 AM

Vinayak said:

Vivek, very good article... however, you have not touched the part where the customer has a dispute with the bank on the credit card/personal loan and the misinformation is reported to the cibil. There is no way the customer gets relief as he/she doesnt come to know about it till he/she has checked the report (which is not an easy way) or he/she has a loan being declined by any bank.

Usually, banks have the tendency to report incorrect things as they have hired mostly incompetent people to handle such things, mainly because anyways the customer is disputing and not giving business.

Honestly speaking, I expect you to touch on that part of the credit reports as you being a CFP, MA in Eco and MBA in finance should be sharing to the people.

Sorry to say, this was a very laymen type of an article. Not meeting expectations from a highly educated person like you.

September 26, 2011 12:10 PM

Sriram said:

This is just a very very high level article. Basically just gives the definition for CIBIL.

It will be beneficial if the author digs in and provides more details on this one.

September 27, 2011 12:23 AM

Soujanya said:

Very good article. Thanks for providing such a good article. But it is very helpful, if you could provide more details on the factors that decide the scores of each individual.

October 4, 2011 10:57 AM

Manjeet said:

Thax for such a brief information on cicil score.

October 14, 2011 1:07 AM

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