It is often said that getting a loan is easy if you have a good CIBIL score. But people with a low CIBIL score find it hard to get a loan. Even if they get one, they have to pay a high interest rate. The problem is that the CIBIL score increases only after taking and repaying a loan. So, what about those who do not have any CIBIL score? What about people taking a loan for the first time?
Under the new guidelines, first-time borrowers may apply for loans without the standard CIBIL score. The Indian government has already stated that, should a prospective borrower present their bank with a loan application and they don’t possess a CIBIL score, they should not simply reject the borrower. The Reserve Bank of India (RBI) has not indicated that any bank or financial institution needs to publish a minimum credit score. The Reserve Bank of India has told lenders not to automatically reject loans from individuals that have no credit history.
What is a CIBIL Score?
A CIBIL score is like a financial report card. It is a number between 300 and 900 that shows how well a person repays their loans. This score helps lenders know if they can trust someone with a loan. When a person takes a loan and repays it on time, their trust increases, and so does their CIBIL score. The higher the score, the more trusted and creditworthy the person is.
Whose CIBIL Score Is Not Considered for Loans?
If a student wants an education loan for the first time, or someone wants a home, personal, or business loan, banks can check other details instead of the CIBIL score. In such cases, the loan eligibility will depend on income details, job records, and other financial documents. This means banks do not have to rely only on the CIBIL score.
In India, credit scores usually range from 300 to 900. It depends on how well a person has repaid their past loans. Most banks use this score to decide loan approval, but the government has said that the CIBIL score is only one factor. Banks can also look at other details before making a decision.
How Many Credit Bureaus Are There in India?
There are four authorized credit bureaus in India — TransUnion CIBIL, Equifax, CRIF High Mark, and Experian. These companies prepare credit reports using a person’s financial and payment history.
Not having a high CIBIL score should not stop anyone from taking a loan for the first time. Once a person takes a loan, their repayment habits will decide their future CIBIL score. This score will later affect the interest rate and loan terms for future loans.