Credit History is a an alien term to 99% of the Indians. So lets explore the necessity of Credit History in India.
Prior to 2003, many businessmen[small / petty traders / contractors etc] including large business houses such as Essar, Jindals etc would borrow heavily from one bank and due to their mismanagement would default on loan payment @ that bank and go and avail a second loan at another bank without the knowledge of the first lender. This led to severe rise in Non Performing Assets of Banks, mainly PSU banks.
In 2002, all the banks came together to form a Credit Bureau which would share only the Credit[Any type of Loan or Credit or Money borrowed] information of borrowers indexed on the basis of IT – PAN number. Thus Credit Information Bureau of India Ltd [CIBIL] was born. In countries like the US & Canada, even defaulting on paying your Rent or Cell Phone Bill, you can get reported to the credit bureau as a defaulter.
Thus if you avail a loan in SBI @ Kashmir and if you default on the payment, you can’t goto Mumbai and avail a loan in any bank because your data from SBI Kashmir is now reported to CIBIL.
Credit Lenders request for a copy of CIBIL report before lending. CIBIL report comes with a statistical score based on various factors and is known as CIBIL Score. This score is an estimate of an individual’s creditworthiness. The score tells the risk of lending to a person. So be very careful the next time you default on paying something.