How do CIBIL™ And Experian Score First-Time Loan Applicants?


India has 4 main credit bureaus; TransUnion CIBIL™, Equifax, Experian and CRIF Highmark.

Your credit score is an important component of your loan applications. It is considered while issuing you a credit card too. The credit score is issued based on your past credit applications and credit repayments.

But what do first-time borrowers do? They have not yet taken any loan or credit card to build a credit score. So, how do credit bureaus rate these first-time borrowers? Let’s find out the answers to these questions.

There is a mechanism for that too.

Credit Score for First-time Borrowers

Rating ScoreDescription
CIBIL™ Score 0No History (NH) or credit track record available for the borrower
CIBIL™ Score -1Credit History Not Available (NA) where borrowers track record is less than 6 months
CIBIL™ Score 1-5CIBIL Transunion 2.0 risk index for new borrowers on a scale of 1 to 5 with 5 being the lowest risk and 1 being the highest risk
Experian 1-6Grading Scale for new borrowers, where 6 being the lowest risk of default, and 1 being the highest risk of default

CIBIL Score for New Borrowers or First Time loan Applicants

CIBIL™ has three different rating scales for new borrowers or first-time loan applicants.

CIBIL Score 0 denotes that the individual does not have a credit history at all. It means that they neither have a loan or a credit card under their name. It is usually given to beginners.

CIBIL Score -1 means that your credit history is less than 6 months old. That means that there is not enough credit information to rate you.

A CIBIL Score of 1-5 is given to new borrowers. It is the new risk index and helps new borrowers to get a loan. As per the scale, 1 denotes a very high-risk candidate and 5 means the least risk profile.

How does Experian score new borrowers?

Experian is another leading credit bureau in India. They too have a rating system for new borrowers or first-time loan applicants.

The bureau rates from 1 to 6, where 1 means a high-risk profile and 6 means a low-risk profile.

Why is it tough for first-time borrowers to obtain loans?

The RBI recommended in a 2014 study not to deny loans to new or first-time borrowers. However, several banks and NBFCs are still hesitant to lend to new borrowers. First-time borrowers face particular difficulty in obtaining a loan because, with little to no credit background available, credit bureaus can find it impossible to determine a credit score, and the lack of a credit score makes it difficult for banks to lend. As a result, obtaining a loan without a credit score is challenging, and building a credit score without a loan can be impossible.

How can first-time borrowers build a credit score?

To introduce yourself to the credit bureaus and develop a credit history, you should apply for credit. There are a few options to start building your credit:

1. Apply for a Secured Credit Card

A secured credit card is issued against a fixed deposit. Nevertheless, it comes with all the features and benefits of a credit card and helps you build credit. You can easily qualify for these credit cards as they are based on your fixed deposit with the bank. This is a great way to start building your credit.

2. Become an Authorized Card Member

You can piggyback on your family member or friend’s credit card and get an add-on card. Since it is not based on your eligibility criteria, you can get it easily. Use this card for your monthly expenses which will in turn build your credit. But ensure that you maintain the card responsibly by using it within your repayment capacity and by making timely bill payments. Misusing the card or defaulting on payment will have an adverse effect on both your credit scores.

3. Get an Instalment Loan

Get a low amount loan and start repaying it. This is one of the best ways to build credit. You can opt for student loans or personal loans. These are flexible loans where you can choose a lower amount and they are also unsecured loans which you can get much easier.

Once you’ve been accepted for your first lines of credit, follow these simple guidelines:

  • Always pay the bills on time. The most important factor influencing your ratings is your payment background.
  • Just a limited part of the credit balance can be used. Maintain your balances at less than 30% of your maximum, and the lower the better.
  • Aim for a mix of credit forms, such as instalment loans with monthly instalments, like an auto loan, and revolving debt, like credit cards.
  • If you follow these moves, you’ll see an increase in the size of your credit reports in no time. You’ll also get a credit score, which entitles you to cheaper interest rates and better credit options, such as an unsecured credit card or one with incentives.

Hope this gives you a clearer picture of your credit scores and ratings, especially if you’re a first-time borrower. Use the tips listed here to build your score and secure the best loan deals on the market.