Home FINANCE Learn How Your CIBIL Score Is Calculated

Learn How Your CIBIL Score Is Calculated

CIBIL score is a three-digit credit score assigned by the TransUnion Credit Information Bureau (India) Limited, ranging from 300 to 900. It serves as an indicator for lenders to understand how trustworthy you are while repaying the loan amount.

This also means if you have a CIBIL score of 750 or higher, there is a better chance of getting your loan sanctioned. Further details on how your CIBIL score is calculated are given below.

How is Credit Score Calculated in India?

During the calculation of the CIBIL score, four factors are mainly considered. Moreover, each one holds a different weightage against which you get an overall credit score. The Credit Bureau gives this point as per the information available from your financial and banking institutions.

The percentages of weightage per factor are as follows.

FactorsWeightage
Repayment history30%
Credit type and duration25%
Credit exposure25%
Other factors20%

The details regarding individual factors are as below.

Also Read: 6 Ways Technology Is Changing The Finance Industry

Factors Considered under the Calculation of CIBIL Score

TransUnion CIBIL prepares a report by summarising your credit information. This includes all relevant information on your history across servicing loans, overdrafts and credit card facilities. In addition, it also considers your payment status and outstanding amount past the due date.

Further, after considering the following factors, they score your performance. So, take these pointers into account while searching for how to calculate a credit score for a personal loan.

Repayment history

CIBIL gives the highest priority to your repayment history while servicing loans and due on a credit card. For this purpose, they collate information by taking information from bill payment details, EMI compliance documents and others sent by the concerned financial institution.

The Credit Bureau mainly focuses on the individual status mentioned under each facility, i.e., whether it is settled, left outstanding, or written off. In case there is a missed EMI, it affects your report negatively.

Credit type and duration

Another essential factor contributing 20% to the calculation of the CIBIL score is credit type and duration. The Credit Bureau analyses whether you mostly take secured types of loans or unsecured ones. Here, you also have to ensure they are balanced, depicting you have experience in both types of instruments.

Moreover, the repayment period is also crucial in determining your score. Depending on the time you take to repay and whether you are paying EMI on time or not will affect your score.

Credit exposure or utilisation

When searching for how the credit score is calculated in India by CIBIL, credit exposure contributes 20%. This means the money you owe. In other words, there is a comparison between the money sanctions you and how much you utilise.

Remember, using up too much of your credit against your income or reaching the limit of your credit card every month has a negative impact on your CIBIL score.

Other factors

These include the number of queries credit agencies have made in your name and how many active credit lines you have in your name.

Number of active credit lines

The Credit Bureau judges your dependency on credit by looking at the number of active credit cards and the loan amount you hold. So if your CIBIL score reports that you have 7 or more active credit lines, it will affect the score.

Not to mention the lender may also reconsider your loan requirement or even reject your request. This is because it suggests you depend more on credit to pay off your living.

Number of inquiries made by credit agencies

As you approach a credit agency for a loan, the lender inquires about your credit score with the Credit Bureau. Moreover, these are usually hard inquiries as lenders want to test your creditworthiness. Therefore, CIBIL records this and adds it to your credit report mentioning how often lenders have inquired about you.

So, if you apply for loans or credit card services too often, your credit score gets affected. Not to mention if a lender rejects your request, it further brings down your CIBIL score. However, you can space the requirement of a loan to increase the score.

How Can You Improve Your Credit Score?

Whenever you plan to apply for a loan, calculate the credit score using an online CIBIL score calculator. So, if it’s low, you can work to improve it. The followings are the ways how you can:

Step 1: Utilise minimum credit

Control the degree of your credit utilisation. This means using only a little of your credit.

Step 2: Make timely repayments

Make the repayments on time. If you forget the EMI dates, set a reminder on the calendar.

Step 3: Create a healthy mix

Maintain a healthy credit mix. This means taking an unsecured loan (personal and credit card loan) after a secured loan (like a home loan and auto loan).

Step 4: Maintain other joint accounts

Know that you are equally liable for missed payment in joint-held, guaranteed and co-signed accounts as your joint holder. So, monitor whether the second person is making his/her payment timely.

Step 5: Monitor your CIBIL score

Keep track of the credit score by regularly reviewing the CIBIL score and the report. This will also help you spot any inaccuracies in the report and give you time to report the authority about the same.

What Is the Ideal CIBIL Score for Loan Sanction?

Depending on the loan type you seek, the ideal CIBIL score range varies. This is demonstrated in the table below.

Loan TypeIdeal CIBIL Score
Personal loan700 or above
Business loan700 or above
Home loan650 or above
Loan against property650 or above

This is all the information available on how your CIBIL is calculated and how to improve cibil score. CIBIL score determines how well you carry the repayment and whether a lender can trust you with a loan. Moreover, since a credible Bureau of India derives it, every lender looks through the report before sanctioning the amount. So make sure you are aware of it before approaching any financial institute.

Also Read: 6 Types Of Personal Loans You Can Apply For

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