The Ministry of Finance has issued an important clarification regarding the role of CIBIL scores in loan approvals. Minister of State Pankaj Chaudhary explained in Parliament that the Reserve Bank of India has not set any mandatory minimum score for borrowers seeking loans. Instead, each bank or financial institution is free to frame its own policy, subject to broad regulatory guidelines.
This announcement comes as a relief for many first-time borrowers who often worry that a lack of credit history will automatically lead to rejection. The Minister specifically stated that lenders have been advised not to reject applications solely on the basis of a borrower not having any prior credit record.
In practice, however, most banks continue to treat a good CIBIL score as a critical part of the loan approval process. Typically, a score of around 700 or higher is considered favourable. This number reflects a person’s past repayment behaviour, credit usage patterns, and financial discipline. It allows banks to assess whether lending to the individual is a safe decision.
What is a CIBIL Score and Why Does it Matter?
A CIBIL score is a three-digit number ranging between 300 and 900, generated on the basis of a person’s borrowing and repayment history. Timely EMI payments, regular clearance of credit card bills, and responsible debt management contribute to higher scores. A strong score improves the chances of loan approval, enables access to higher credit limits, and often results in more competitive interest rates.
In cases where borrowers do not have a credit history, banks can rely on other parameters such as income proof, job stability, collateral, or even guarantors before sanctioning loans. This flexibility ensures that new borrowers are not unfairly excluded from access to credit.
Role of Multiple Credit Bureaus
While CIBIL is the most commonly known bureau, there are actually four authorised agencies in India that generate credit reports. These include TransUnion CIBIL Ltd, Equifax Credit Information Services Pvt Ltd, d, and Experian Credit Information Company of India Pvt Ltd. Each bureau collects data from banks and lenders, and the Reserve Bank of India regulates their fees and mandates that every individual can access one free credit report annually.
What This Means for Borrowers
The clarification ensures that financial inclusion is not hampered by rigid credit score rules. It is now clear that while maintaining a good CIBIL score improves your borrowing prospects, it is not a legally enforced requirement for obtaining a loan. First-time borrowers, especially young professionals or those new to formal banking, can apply with confidence knowing that banks must look at the complete financial profile rather than just a credit score.
At the same time, building and maintaining a healthy score remains important. Responsible credit behaviour ensures easier access to funds when needed and helps in negotiating better terms with lenders.
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