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Importance of credit monitoring on CIBIL Score

The Credit Information Bureau India Limited, abbreviated as CIBIL, was the first Credit Information Company in India. The organisation is responsible for maintaining credit files on earning individuals. Records are submitted to the company by registered banks who are members. However, it is not restricted to banks and other financial institutions can also be registered members. The records are submitted on a monthly basis. Based on this data and record, CIBIL issues a Credit Information Report or CIR, commonly known as credit report or a credit score.

CIBIL maintains and collects all the credit-related information of corporates and individuals like loans and credit cards. It is a database of credit information and doesn't make lending decisions for banks and other financial institutions. Its purpose is to provide data to financial institutions like banks. They use this data to filter applications for credit cards and any form of loans in order to recognize the credible ones.

CIBIL generates your credit report and credit score based on the information provided to them by banks and other financial institutions. CIBIL reports and credit scores are very crucial and lenders use them to estimate your financial health. It determines whether you are eligible and credible enough for a loan or a credit card. Good credit scores can fetch you not just higher limits, but also lower interest rates. A good credit score proves your creditworthiness to a lender and it also gives you the power to negotiate with the lender for lower interest rates.

A CIBIL score or credit score is basically a summary of your credit history in numerical digits. This score is derived using your credit history provided by the banks to the bureau. It's an assessment of how credible a lender you are. It is a summary of your financial activities, good and bad, your salary, expenditure, previous loans, any kind of financial crime committed, etc. The score usually ranges from 300 to 900. The closer you are to 900, the better are your chances to receive a loan. A score above 700 is usually considered good.

What Is Credit Monitoring?

Credit monitoring is done to track the changes in the financial behaviour of the borrower, so as to notify banks and lending institutions of fraud or even potential fraud. But, the definition can be a little difficult to understand. So, to put it in very simple words, Credit monitoring is a service that notifies you when any change is made to your credit report. Credit report is basically a record of all of your credit activity and your credit history. It includes the companies which have provided you with loans or credit and also your credit limits and amounts. This record also includes your payment history. Moreover, if you have any delinquent accounts, bankruptcy, foreclosure or even settlement, they are also included in your credit report.

The security of your credit report is extremely important due to the threat of identity theft. People can illicitly use your financial and personal information and commit identity fraud. This can be anything from illegal purchases at retail or online outlets using a stolen credit card to using your credentials for fake claims and purchases.

This kind of criminal activity is very difficult to detect and often goes undetected. This can completely destroy a person's credit. What credit monitoring does is notify you of any and all changes to your credit report, so that you can confirm the authenticity and accuracy of the change or sort out the problem before it gets worse. Any kind of suspicious activity in your credit report can be a sign of potential fraud. Credit monitoring services will usually notify you in no more than 24 hours of any change being made to your credit report. The notifications are provided in the form of a call, text, or email depending on your preferences and comfort.

Impact of Credit Monitoring on CIBIL Score

There are multiple reasons for a low CIBIL score such as late payments on EMI, multiple hard inquiries and failed attempts for credit, frequently reaching credit limit, etc.

There is a common misconception among people that checking your credit score can hurt your CIBIL score. Accessing your credit reports does not affect your score. Reviewing a credit report is called ‘soft inquiry’ which means that's only visible on a personal credit report. On the other hand, when you apply for a credit and the lender reviews your credit report, it's called ‘hard inquiry’ which can be seen on the credit report because it represents an enquiry for new debt. It's essential for you to check your CIBIL score monthly or at least annually. It's considered good credit management.

As mentioned before, there is always the threat of identity theft to your CIBIL report and score which can lead to a shaky credit report. Credit monitoring informs you about any changes made to your credit report. This helps you manage your credit expenses, know what affects your overall credit score and how, and most importantly, with the help of these regular updates, you can find if there is anything suspicious in your credit report and also about any purchases you didn't make or a loan that you didn't take.

These kind of unauthorised activities and expenses can negatively reflect on your credit report and impact your CIBIL score adversely. If you have been a victim of credit fraud, credit monitoring can help you big time.

Benefits of Credit Monitoring

  • Plan Finances in Advance :

Not managing and planning your finances can make things difficult in the long run. It is one of the biggest reasons behind a low CIBIL score. Credit monitoring alerts you about the changes to your credit score and this knowledge helps you understand how your financial activities affect your score. It helps you make better financial decisions. You can evaluate your performance, all your financial activities, identify what you are doing wrong, and how you can implement corrective measures.

  • Can Help you Prevent Identity Theft :

You have to be very cautious about how you handle your credit because anything and everything you do reflects on your report. But the person who steals your identity would not care about that since it makes no difference to his/her life. Identity theft is a very serious problem that can easily go undetected if you don't pay close attention. The longer the fraud persists, the worse your credit report and CIBIL score will get. A person who suffers from identity theft might be required to spend approximately 50 hours over a span of six months to fix his credit with the credit reporting agencies. Instead of having to go through so much, you can just pay a few extra bucks for credit monitoring which will inform you of such things right away.

  • You can Customise Alerts : Some credit monitoring companies provide you with comprehensive services. You can customise the reports, notifications, and alerts that you will receive. For example, you can choose to receive a notification every time there's a particularly suspicious purchase on one of your credit cards, or if you're applying for a home loan or car loan, they can send you information on the best rates depending on your financial requirement and condition.

Frequently Asked Questions

Does credit monitoring prevent identity theft?

No, credit monitoring cannot prevent identity theft. Credit card theft and fraud is just a part of the problem of identity theft. Paying a company to monitor your credit will not stop identity theft or the unauthorised use of your personal data. It simply detects all changes in your credit report, especially the suspicious activities and notifies you. It helps you identify and consequently prevent identity theft.

How can I improve my CIBIL score?

Credit monitoring is just one of the things that can improve your CIBIL score. Besides it, there are several other measures that you can adopt to improve your CIBIL score. Always pay your dues on time, keep your balance low, don't use too much credit, and apply for new credit in moderation, only when it's necessary as it goes on your permanent record. Also, monitor your co-signed, guaranteed and joint accounts monthly and review your credit history frequently on a monthly or yearly basis.

What affects my credit score the most?

The most important aspect of your credit score is your payment history. It shows how you've managed your finances and it also shows any late payments. Another very important aspect is your credit history. It shows how long you have been managing your accounts, when your last payment was made, and also reflects any recent or old charges.

How is my credit score calculated?

As payment history is the most important aspect, its weightage is about 35%. The amount you owe to your lenders makes up 30% of the score. Credit history represents 15% and the types of new credit accounts 10%. All of these values are then broken down into a three digit credit score which ranges between 300 and 900.