The Finance Ministry has recently issued a clarification regarding the role of CIBIL scores in loan approvals, putting to rest concerns about whether they are mandatory for first-time borrowers. According to the ministry, while credit scores are important tools for lenders, they are not the sole deciding factor in loan sanctioning. Banks and financial institutions can evaluate applications based on multiple criteria, ensuring that individuals without a prior credit history are not unfairly excluded.
Minister of State (MoS) for Finance, Pankaj Choudhary, has stated that CIBIL is one of the four authorized Credit Information Companies (CICs) in India, licensed and regulated by the Reserve Bank of India (RBI). The other three CICs are:
- Equifax Credit Information Services
- Experian Credit Information Company of India
- CRIF High Mark Credit Information Services
These agencies collect and process borrower information to provide credit scores and reports to banks, non-banking financial companies (NBFCs), and other specified users. The minister emphasized that CIBIL and other CICs function under the Credit Information Companies (Regulation) Act, 2005 (CICRA) and the CIC Regulations, 2006, with oversight from the RBI.
Why is CIBIL Score Considered Important?
The minister clarified that credit scores play a crucial role in assessing a borrower’s creditworthiness. Banks are required to conduct due diligence from multiple sources, including CICs like CIBIL, before granting loans.
A credit report contains information such as:
- Repayment history of past loans
- Records of delayed payments
- Loans that were restructured, settled, or written off
This data helps lenders evaluate an applicant’s repayment capacity and overall financial discipline. Essentially, while the CIBIL score provides a snapshot of reliability, it is one of the many tools used to make informed lending decisions.
Can You Get a Loan Without a CIBIL Score?
For first-time borrowers, the absence of a CIBIL score should not prevent loan approval.
- The RBI has not set any minimum credit score requirement for loan sanctioning. Instead, financial institutions rely on their internal policies, board guidelines, and regulatory norms to decide.
- An RBI directive issued in January 2025 specifically instructed CICs and lenders that loan applications from individuals with no prior credit history must not be rejected solely for this reason.
- This means that newcomers—such as young professionals or students applying for their first loan—still have access to credit opportunities.
A common concern among borrowers is the fee charged to obtain their credit score. The RBI regulates this fee, which cannot exceed INR 100 when an individual requests their own credit report. Additionally, in 2016, the RBI mandated that all CICs must provide one free credit report, including the credit score, once every year in electronic format to individuals whose data is available with them. This ensures that consumers can track their financial health without incurring heavy costs.
Key Functions of CIBIL
As outlined under CICRA 2005, the primary responsibilities of CIBIL and other credit bureaus include:
- Collecting, collating, and maintaining financial and credit information about borrowers.
- Providing credit reports and scores to banks, NBFCs, and other specified users.
- Retaining borrower credit history for a minimum period of seven years.
The Budget 2024 had announced plans to establish the National Financial Information Registry (NFIR), envisioned as a central repository of credit and related financial data. While this initiative aims to enable more comprehensive borrower assessments, the minister clarified that there is currently no proposal to replace CIBIL or other CICs with this mechanism. Instead, the NFIR is expected to complement existing systems.
The Finance Ministry’s clarification makes it clear that while CIBIL scores are valuable indicators of creditworthiness, they are not mandatory for loan approvals, especially for first-time borrowers. Banks and lenders consider multiple factors, including repayment capacity, income stability, and regulatory guidelines, before approving loans. Borrowers should remember that they are entitled to one free credit report annually and that the RBI caps the maximum charge for accessing their own score. With the upcoming NFIR framework and stricter grievance mechanisms, India’s credit assessment system is evolving to become more inclusive, transparent, and consumer friendly.
For individuals, the key takeaway is simple: a CIBIL score is important, but not the only gateway to getting credit. By maintaining good financial habits, staying informed about their credit reports, and understanding their rights, borrowers can navigate the lending landscape with confidence.