ATM :: Should you obsess about your Cibil score?

If you pay your debts on time and have reasonable debt in line with your income, you are fine
Harsh Roongta | October 6, 2013 Last Updated at 22:35 IST | Business Standard


“Recently, I received my credit score from Credit Information Bureau India Limited (Cibil). Despite paying all my loans and credit card dues on time, my score was only 805. My friend, who has a similar history, has a credit score of 820. I want to know how to increase my credit score.”

The number of such queries on our website has increased significantly, especially after Cibil ran a series of television advertisements, highlighting the importance of the Cibil score with the tagline, “Aage badhne ke liye naam nahi, number zaroori hai.”

Thanks to the increasing awareness and television advertisements, most people are aware about credit scores provided by Cibil, based on its analysis of the repayment information from lenders. It uses the information to arrive at a score between 300 and 900. The score is an indication for banks – the higher the score, the lower the chances of a default on a credit facility (loan or credit card). In a number of developed economies, including the US, every 10-point increase in the credit score might lead to significant variation in the interest rate.

As such, if the person querying the score was in the US, his concern about a 15-point difference between his credit score and that of his friend’s would have been justified, as it might have meant a 0.25 per cent difference in a 30-year home loan annually. In India, however, we have seen credit scores are essentially used to eliminate applicants, rather than provide them preferential terms. So, you should worry if your score is below 750, as you might not get a loan in this case. But this doesn’t mean if the score is more than 750, you would surely get a loan; a lender would look at several other factors. Believe me, your score of 805 and your friend’s score of 820 wouldn’t be considered different, as long as other things are the same.

In its circular on zero per cent loan schemes, the Reserve Bank of India had acknowledged the return on investment was generally flat and indifferent to customers’ risk profiles.

As far as an answer to the anguished query at the beginning of the article is concerned, the calculation of credit scores by Cibil is a secret, as are the code to the US nuclear weapons or the original Coke formula. But the good news is you need not try to crack this.

Broadly speaking, if you pay your debts and bills on time and have a reasonable amount of debt, in line with your income, the situation is fine. You are already doing well, as proved by your rather high score of 805. Now, stop obsessing about the score; it doesn’t matter as long as you don’t take too many loans or default on a loan or a credit card bill. Since you already know your existing credit score, which is good, you could keep asking for your credit report once a year, for monitoring. Ensure no error has crept in your credit report and it is shipshape. You would save about Rs 320 (credit score costs Rs 470, compared to the bare credit report, which costs about Rs 150), which you could use to join the local gym to get yourself in shape. You are already in good financial shape, as far as your ability to borrow is concerned!

And, you should petition the regulator for access to your credit report free of cost once a year, as is the norm in many developed economies.

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