What are the factors that determine CIBIL score calculation?

What exactly Is a CIBIL score?

Your CIBIL Score establishes your trustworthiness as a borrower, and a high score means you will receive favourable offers for new loans and financial incentives. Before proceeding with existing loan applications, banks, lending partners, NBFCs, and financial institutions request to see your CIBIL score. The CIBIL range is a three-digit number between 300 and 900. A rating of 850 or more is regarded as excellent, while ratings of 300 or lower can prevent debtors from applying for new loans. Most loan applications with a CIBIL score of 750 or better are immediately accepted. Your creditworthiness as a borrower is determined by your CIBIL score. It is calculated after four major parameters are evaluated.

A person’s creditworthiness is determined by their CIBIL (Credit Information Bureau (India) Limited) score, which is a consideration examined every time a bank or financial institution evaluates your loan application. Let’s have a look at how to calculate CIBIL score, how to enhance one’s CIBIL score, and how to compute CIBIL score for house loans and personal loans.

In India, four major credit bureaus calculate credit scores.

  • Equifax 
  • TransUnion 
  • CRIF 
  • Experian 
  • Highmark

Because CIBIL credit ratings are the most commonly used, credit score is frequently referred to as a person’s CIBIL score. It is a three-digit number ranging from 300 to 900.

How is the CIBIL score determined?

Four elements are considered when calculating the CIBIL score. Payment history, credit exposure, credit type and length, and other criteria are among them. In determining a CIBIL score, these four elements are weighted at 30%, 25%, 25%, and 20%, respectively.

Type and length of credit

Another aspect examined when determining an individual’s creditworthiness is credit history. When you have both secured and unsecured loans on your credit record, it indicates that you have expertise dealing with both sorts of credit.

Payment record

If you are already repaying a loan and have missed one of your EMIs (Equated Monthly Instalments), your CIBIL score will suffer.

Exposure to credit

Credit exposure, also known as credit utilisation ratio, is another aspect that influences a person’s CIBIL score. The credit utilisation ratio measures how much credit a person uses in relation to their available credit limit. A high credit usage ratio is detrimental to your credit score and makes obtaining a loan difficult.

Other considerations

A few additional indicators, such as the number of unsuccessful credit queries, are also considered when calculating the CIBIL score. Your CIBIL report is updated every time you request for credit. As a result, making multiple loan requests in quick succession can lower your CIBIL score. Furthermore, every time your credit inquiry is denied, your CIBIL score suffers.

How can you raise your CIBIL score?

Here are some pointers to help you raise your CIBIL score:

Examine your credit report

Unresolved problems in credit reports may occasionally go unreported. Check credit score on a regular basis to verify there are no missing payments. Reporting errors might range from late payments to a lack of updates to missing data.

Don’t use all your credit

Use no more than 30% of your credit limit; else, your CIBIL credit score will suffer. It is recommended that you pay off all your credit card debts before this. If you are keeping your credit use ratio low, you should request a bigger credit limit. Also, avoid applying for many credit cards or loans at the same time.

Be Consistent and Patient

Your CIBIL score did not deteriorate overnight, so don’t expect it to improve overnight. Maintain consistency in your accounts, make timely payments, and ensure you’re in the clear. As long as you have good borrowing and repayment habits, it should show up in your credit score.

Apply for Various Types of Credit

You can apply for several sorts of credit, such as a combination of unsecured and personal loans. You will not only benefit from lower loan rates, but you will also enhance your credit history. A person who has never asked for a loan has a CIBIL score that is either non-existent or zero. When you obtain different lines of credit, your points increase, and your portfolio becomes more diverse. 

Repay credit card balances

Make careful to pay off any outstanding credit card balances on schedule. Making only the minimum dues and interest payments each month will help you avoid late penalties. However, interest can add to a mountain of debt, which is why you should pay not only your dues but also everything you borrowed until you’re out of debt. Your CIBIL credit score will improve if you pay your due amount on time every month.

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