What is CIBIL Score -1

A CIBIL score of -1 (also denoted as ‘No History’ or ‘NH’) indicates that the borrower has no credit history. 

 

An individual may have a CIBIL-1 score as a result of the following scenarios:

1. If there is no credit history or record in the name of the borrower
   

2. If the individual has not taken a loan or applied for a credit card in his or her name in the past 2 years
   

3. If the individual does not have direct credit exposure in their name (For example, if people are using add-on cards)
   
   

While a few banking institutions or non-banking financial companies may still lend money to an individual after a credit appraisal, some may directly reject the loan application of an individual with a CIBIL score of -1.

Apart from the credit score parameter, banks analyse the repayment capability of a borrower by evaluating the following:

• Savings Account Balance
  

Maintaining a balance that can be considered sufficient in a savings account may help the lender get a picture of your savings and expenses.

 

For example, if you consistently maintain adequate funds in your account, it would give the lender a sense that your financial position is reasonably stable.

 

On the other hand, a bank account with a minimum required balance or below could tell the borrower that the financial position is not ideal for someone who will need to pay a certain amount every month towards the loan.

• Cheque Bounces
  

Such a situation may make a lender all the more sceptical about lending any money to the borrower. Hence, disciplined honouring of cheques that are issued is considered to be a plus factor.

• Getting Secured or Small Loans
  

First-time borrowers may find it easier to get loans for short repayment tenure. You can even opt for student credit cards or entry-level secured credit cards. 

 

Banking institutions are generally more open to offering small secured loans to new borrowers. Note that the timely repayment of such loans will gradually increase their credit score.

• Employment Situation
  

If the borrower is working with a reputed private organisation or a public-sector company at a respectable position, the associated risk is then considered to be lower than that of a person who works in a start-up.

 

For example, in a temporary profile, these aspects are considered because the job of a borrower serves as a guarantor for the loan amount.

Contact your bank executives and explain why you are a creditworthy applicant, even without a credit score or history.

 

You must submit proof of income and a letter from your employer, among a few other documents. All of this must be done to prove that the score is an inaccurate representation of your creditworthiness.

 

Once you have secured the loan, repaying the same on time will impact your score positively. Ensure that you pay every EMI payment on time.

 

You must also try not to foreclose or arrive at a ‘settlement’ with the bank. Remember, your repayment information and remarks given by the bank will be included in your credit report.

A CIBIL score of -1, while less frequent, is a significant indicator of a specific credit situation. It is not a low score but it represents the absence of a credit history. Here's a detailed look at the characteristics and implications of a CIBIL score of -1:

Absence of Credit History

A CIBIL score of -1 signifies that the credit bureau has no record of your credit behaviour. This does not highlight a lack of recent activity but indicates that there is no tradeline information available for at least the past 24 months or more. In simpler terms, you have never taken a loan, used a credit card, or had any other form of credit that would be reported to the credit bureaus. This absence of data prevents the calculation of a standard CIBIL score.

Challenges in Credit Approval

Lenders rely heavily on credit history to assess the risk associated with lending. -1 score presents a significant challenge because it offers no insight into your creditworthiness. Thus, lenders have no way to gauge your repayment habits or ability to manage debt. This makes it difficult for loan providers and credit card issuers to approve your credit applications, as they cannot assess the risk involved.

Need for Additional Documentation

Because your credit history is unavailable, you must proactively provide alternative documentation to demonstrate your financial strength and repayment capacity. This is crucial for convincing financial institutions that you are creditworthy despite the absence of a credit history. The types of documents lenders might ask you to submit include:

• Income tax returns (ITR)

• Salary slips

• Employment contracts

• Bank statements

• Proof of property ownership, investments, etc.

 

In some cases, the lenders may require a guarantor with a strong credit history as a co-signer for the loan. The guarantor's creditworthiness provides additional security and boosts your eligibility for the loan.

Building Credit from Scratch

Overcoming a -1 CIBIL score requires a conscious effort to build a credit history. Strategies for establishing credit include using secured credit cards. These cards require a cash deposit that acts as the credit limit, minimising the risk for the lender. Responsible use and timely payments on a secured card help build a positive credit history.

Also, if a trusted family member or friend has a credit card with a good payment history, becoming an authorised user can help establish a credit record. However, it's important to ensure the card issuer reports authorised user activity to the credit bureaus.

Lenders rely on credit history to assess the risk associated with lending money to a borrower. Without any credit history, lenders have no way of knowing how you've handled credit in the past. This makes it difficult for them to predict your future repayment behaviour. Here are some more reasons why credit history is crucial:

Predicting Repayment Behaviour

Credit history provides a track record of how you've managed your financial obligations. It shows whether you have consistently paid your bills on time, how much debt you have taken, and whether you have ever defaulted on a loan. This information helps lenders predict the likelihood of you repaying your loan in the future.

Assessing Creditworthiness

A positive credit history demonstrates responsible financial behaviour and indicates a lower risk of default. This builds trust between the borrower and the lender. A good credit history makes it easier to obtain loans and credit cards with favourable terms, such as lower interest rates and higher credit limits.

Determining Loan Terms

Lenders use credit history to determine the terms of a loan, including the interest rate, loan amount, and repayment period. Borrowers with good credit scores are typically offered lower interest rates, as they are considered less risky. Conversely, those with poor or no credit history may face higher interest rates or may be denied credit altogether.

Facilitating Access to Credit

In today's economy, access to credit is often essential for major purchases, such as a home or car. Building a positive credit history is crucial for gaining access to these opportunities.

Let's look at the implications of having no credit history represented by the -1 score:

Difficulty Obtaining Credit

Lenders rely on credit history to assess risk. Without a credit history, lenders have no way of knowing how you manage credit. This makes them hesitant to lend money, as they have no basis for predicting repayment behaviour. You may find it difficult to get approved for loans, credit cards, or other forms of credit.

Limited Options

Many financial products and services, such as mortgages, personal loans, credit cards, and even some rental agreements, require a credit check. Without a credit history, your options will be severely limited.

Need to Build Credit from Scratch

Since a -1 score effectively means no history, you'll need to start building your credit history from the ground up. This may involve starting with a secured credit card (where you deposit money upfront that acts as your credit limit) or a small loan from a local credit union.

Higher Interest Rates

If you are able to get approved for any form of credit with no repayment history, a higher interest rate may be charged. For lenders, offering a loan to someone with no credit history carries a higher risk. This is because they compensate for the said risk by charging more.

 

It is crucial to understand that having no credit history is not the same as having bad credit. A -1 score, or simply having no credit history, doesn't mean you're financially irresponsible. Your current income, savings, and assets are still relevant to your overall financial standing, but they won't influence a CIBIL score, and vice versa.