This is the era of high spending. The truth is today people spend more than their grandparents or parents ever did. Increasing incomes, the desire to own a house in one’s early twenties, the availability of variety in lifestyle and brand choices, a booming economy, a growing number of entrepreneurs, new business establishments, etc, are leading to a tremendous amount of money outflow.
Money rotation is a key factor in a progressive economy and this means there is a lot of lending. In the event of such rapid money outflow from bank coffers, several questions — like how does one keep a tab on all the credit lent, how does one identify defaulters and refrain from re-lending to them — began to crop up.
To seek a solution to these queries, the government of India and the Reserve Bank of India got together to bring CIBIL (Credit Information Bureau India Ltd) into existence.
Currently banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.
The idea behind setting up CIBIL is to gather all existing consumer and commercial credit information and pool it in a one-point source, for reference.
As in, an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out at one single point, for a quick reference check on the individual or commercial establishment seeking a loan.
This helps the lender, be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility. According to the nature of the track record, a borrower is given a credit score. A poor credit score will make getting a loan, a difficult proposition for the borrower.
CIBIL acts as weeding mechanism that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.
On the other hand, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles that have excellent credit scores and such ‘Credit Information Reports’ can work to your advantage.
It also helps lenders and banks quickly process a loan, without wasting valuable time on research and background check on the loan applicant.
Well, this is the brighter side of things.
Money rotation is a key factor in a progressive economy and this means there is a lot of lending. In the event of such rapid money outflow from bank coffers, several questions — like how does one keep a tab on all the credit lent, how does one identify defaulters and refrain from re-lending to them — began to crop up.
To seek a solution to these queries, the government of India and the Reserve Bank of India got together to bring CIBIL (Credit Information Bureau India Ltd) into existence.
Currently banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.
The idea behind setting up CIBIL is to gather all existing consumer and commercial credit information and pool it in a one-point source, for reference.
As in, an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out at one single point, for a quick reference check on the individual or commercial establishment seeking a loan.
This helps the lender, be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility. According to the nature of the track record, a borrower is given a credit score. A poor credit score will make getting a loan, a difficult proposition for the borrower.
CIBIL acts as weeding mechanism that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.
On the other hand, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles that have excellent credit scores and such ‘Credit Information Reports’ can work to your advantage.
It also helps lenders and banks quickly process a loan, without wasting valuable time on research and background check on the loan applicant.
Well, this is the brighter side of things.
There is a flip side to this, too. CIBIL- Flip side
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