How to read CIBIL Score and Risk Index is one of the most common query. In layman terms CIBIL Score is nothing but risk assessment / credit worthiness of a potential borrower based on past credit history. Though CIBIL Score and Risk Index is the 1st level shortlisting criterion by the Mortgage Lender. Executives of financial institutions who have access to this data are not competent enough to explain the CIBIL Score / risk index to borrowers. It create panic situation among borrowers.
How to read CIBIL Score and Risk Index?
CIBIL basically divide all Individuals / potential borrowers into following 3 categories. We will understand CIBIL Score / Risk Index in each category separately.
(a) Individuals with either No Credit History or Credit History not reported to CIBIL.
(b) Individuals with less than 6 months Credit History
(c) Individuals with more than 6 months Credit History in last 2 years
CIBIL Score / Risk Index returned for each of the above mentioned category of potential borrowers is different. Lets check out how to read
(a) Individuals with either No Credit History or Credit History not reported to CIBIL:
In this category, the index returned is either NA (Not Available)or NH (No History). What it implies is that individual has No credit history and / or Credit History is not reported to CIBIL by the financial institution. NA or NH cannot be classified as low score or poor credit history. It simply means there is no credit activity registered or reported. Now one whose CIBIL index was NA, asks NA or NH is not viewed negatively by the financial institution then why her Home Loan was rejected. Answer is very simple, some financial institutions have policy not to lend with NA or NH index. In short, in the absence of risk index / CIBIL Score financial institution has no criterion to check risk assessment.
(b) Individuals with less than 6 months Credit History
In this category, CIBIL return Risk Index between 1 to 5 therefore as i explained in above mentioned example that 2 is not a CIBIL Score but risk index of the potential borrower. Lets check how to read Risk index between 1 to 5
High Risk: Index of 1 and 2
Medium Risk: Index of 3
Low Risk: Index of 4 and 5
In some cases, the loan was rejected because of high risk index of 2. To maintain good CIBIL score, it is advisable to follow good credit practices from the beginning. It is observed that most of the Low CIBIL Score cases handled by me were outcome of ignorance of a borrower initially. It is always advocated that banks should appoint qualified Credit Counselors instead of executives with not even bare operational knowledge.
In this category CIBIL Score is returned i.e. value between 300 to 900. Higher the CIBIL score, lower the risk and vice versa. High credit score does not guarantee sure shot loan / mortgage. CIBIL Score depend on 70 parameters to arrive at your CIBIL Score. It is critical to find out parameters which are impacting CIBIL Score negatively. CIBIL Score can be linked to credit worthiness of an individual. Lets check credit worthiness
Score between 300 to 600: Very Poor
Score between 600 to 700: OK
Score between 700 to 775: Good
Score of more than 775: Marvelous
Normally people have tendency to compare CIBIL Score / Risk Index.
One of the most common casualty is Secured Credit Card. In most of the cases, secured credit card details are not reported to CIBIL by the banks. It defeats the whole purpose behind secured credit card. Most of the people opt for this credit card to improve their CIBIL Score or Risk Index. If it is not reported then you should immediately bring it to the notice of a bank.
Lastly, as it is always request that before applying for any loan or mortgage one should check your CIBIL Score / Risk Index to avoid any future shocks. You can take all corrective steps to improve your CIBIL Score / Risk Index in advance. Its a misconception that your CIBIL score is impacted if you check your CIBIL Score. Fact of the matter is that you can check your CIBIL Score as many times as you can. It will not impact your CIBIL score negatively. You can pull out your CIBIL Report online. Click Here to get your online CIBIL Report.
To summarize, It is always advisable to understand the CIBIL Report before arriving at any conclusion. If your loan is rejected you have right to know the reason for rejection. Blanket answer from financial institutions that “Your CIBIL Score is LOW” should be supported by logical reasoning. High Risk Index is not the end of the road. You can always improve your CIBIL Score with good credit practices.
Visit - www.cibilconsultants.com
Source: Secondary
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