CIBIL score is of extreme importance for anyone who wants the maximum credit facility, whether that is a personal loan, education loan, car loan, or home loan. Those who do not have decent credit scores might not be considered eligible for any kind of credit facility. Prior to the initiation of CIBIL, banks and other lending institutions had no idea about the financial history of a probable customer.
Many of those who sought loans as customers could make simultaneous loan applications with various institutions, cheat banks, and get away with late payments or absolutely no payment at all. The outstanding credit would subsequently be settled by these people for smaller amounts, thus negatively affecting the financial books of the banks.
CIBIL boasts of a formidable team of over 900 members comprising each public and private sector bank in the nation, housing finance institutions, and various other non-banking financial companies. Registered with CIBIL, these companies send customer data to CIBIL every month. They also send details about payments received, defaults, accounts closed or accounts settled. This information is utilized by CIBIL to issue a credit score, known as the CIBIL score, which is finally assigned to a customer.
When a person makes a loan application, the financial institution or the bank contacts CIBIL, first, to check the credit background of the probable customer as well as their credit score. There are certain other factors that might also be considered by the lending institutions to determine an applicant's eligibility for any loan, but a credit score above 700 will give the applicant the highest credibility.
There might have been instances when applicants with decent CIBIL scores might have had their loan applications declined, but the reason behind it could possibly be that the applicant has maxed out their credit limit. It is advisable to maintain a ratio of minimum 50% between their monthly instalment and monthly earning.
If an individual has already made use of credit facilities to 50% of their monthly earning, they will not be eligible to further use their credit until the ratio reduces. This means that a part of the loans needs to be first paid off in full with the intention of lowering the EMI, achieving which they will become eligible to take further loans.