If there is absolutely no credit history or record in the name of the borrower
If the individual has not taken a loan or applied for a credit card in his or her name in the past 2 years.
If the individual does not have a direct credit exposure in their name (For example, if people are using add-on cards)
While the aforementioned situation is not exactly a negative one, it does cause difficulties for the borrower as and when they apply for a loan or credit card in their name and with the help of their personal credentials. While a few banking institutions or non banking financial companies might still decide to lend an individual money after a credit appraisal, some may just directly reject the loan application of an individual with a CIBIL - 1 score.
In addition to the risk score that has been put into place for new borrowers from a myriad of credit agencies, banks have also begun utilising various surrogate and ad-hoc parameters in order to gauge the likelihood of the total repayment of a loan by the new borrower. Some of these are:
Savings Account Balance: Maintaining a balance that can be considered decent in a savings account is something that might help the lender get a picture of the financial management and saving capabilities/tendencies of the borrower. For example, if the applicant maintains a fair amount of savings in his or her account consistently, it would give the lender a sense that the borrower is in a comfortable financial position. On the other hand, a bank account that only has the minimum required balance or below that could tell the borrower that the financial position might not be ideal for someone who will need to pay a certain amount every month towards their loan.
Zero Cheque Bounces: The cheques that are issued without the funds to cover them in the account will cause what is known as a cheque bounce. Such a situation may make a lender all the more skeptical about lending any money to the borrower. Hence, disciplined honouring of cheques that are issued are considered to be a plus.
Beginning With Secured or Small Loans: First-time borrowers might find it easier to apply for and get loans for small repayment tenors or go for the likes of entry-level secured credit cards or student credit cards, to name a few. Banking institutions are generally more open to offering small secured loans to new borrowers. It must be noted that the timely servicing such loans will gradually build their credit score.
Demographics: Banks also tend to consider the credit history of the people with similar demographics and/or from similar geographical regions in order to deduce the likely creditworthiness of the applicant. Banks also consider the loan size and the kind of loan that is applied for demographics such as someone who is the applicant’s age or lives in a similar vicinity to either rate or calculate the individual’s representative score.
Employment Situation: If the borrower is working with a private organization of repute or a public-sector company and has a respectable position, the associated risk is then considered to be lower in comparison to that of a person who works in a start-up, for example or in a temporary profile. These things are looked at due to the fact that the borrower’s job works as a silent guarantor for the loan amount.
Residence Type: If the borrower lives in a house that is owned by him or her or has been a tenant there for a long time, the borrower will unquestionably score more than a borrower who lives in a rented apartment or for a shorter period of time. Such a type of residence also matters from the perspective of the banks as and when they are considering first-time borrowers. However, in the case of such people, banks tend to start with a low credit limit. The same increases gradually as and when the repayment track record of the borrower grows.
One can simply talk to the bank executive themselves and explain as to how and why they are a creditworthy candidate, who unfortunately does not have a credit score or history in order to take things forward. They will be required to submit proof of income and a letter from his or her employer, among a few other documents. All of this needs to be done in order to prove that their credit score is an inaccurate representation of their creditworthiness.
Once the new loan has been secured by the borrower, paying the same off in a timely manner will result in their score rising, impacting their CIBIL score positively. To earn those remarks, one must make sure that each and every EMI payment has been made on time, as this will not only save them from penalties and fines, but will also improve their credit rating. As and when the borrower’s credit report begins stating that the first loan that you took was repaid successfully in full and as per the agreed-upon loan repayment terms. One must also always try to not foreclose or arrive at a “settlement” with their bank. An individual’s loan repayment details and remarks from the bank will be presented in the borrower’s new CIBIL TransUnion credit report. A majority of the banks today are using these very scores in order to determine the credit-worthiness of borrowers that have less than 6 months of or no borrowing history at all.
A CIBIL minus 1 score indicates that an individual has no credit history. If the individual’s CIBIL score is depicted as -1, it says that the borrower has not taken any form of a credit card or loan either till date or in the past 2 years.
A negative CIBIL score indicates that no credit history pertaining to you is available. If your CIBIL score is negative, you must consider applying for a credit card in order to start your credit history. It generally takes approximately 6 months of credit history in order to calculate a CIBIL score.
A no-hit or no history is an indication of the person not having a credit history long enough for a credit score calculation.