How Is CIBIL Score Calculated?

What is CIBIL score? The CIBIL score is a 3 digit numeric representation of your financial health. A number more than 700 is considered a good CIBIL score. Anything less than 700 is considered average. Banks have cut-offs based on the CIBIL score of a person. Some banks only give loans to candidates with a CIBIL score of 700 and higher. Some financial institutions are ok to give loans to those with CIBIL scores less than 700. It depends on the bank or financial institution’s policies.

How is CIBIL score calculated?

Credit bureaus use many indicators or factors to determine the credit score of a person.

• Credit history – Your repayment history heavily weighs as an indicator of your creditworthiness. A CIBL score check free will indicate that credit bureaus take into account all recorded payment history events. It includes payments made on time, missed payments, delayed payments, etc. All banks and financial institutions furnish this information to credit bureaus. Credit bureaus record the status of your loan accounts and credit card accounts. A written off loan account can repel banks from giving loans than a loan account that is closed because the outstanding amount was paid in full. Therefore, to ensure a clean slate, check your CIBIL report and see if you have any written off accounts, and try to pay the money in full so that it is closed. If there are any loan accounts that are in a pending or active state, ensure to diligently make payments towards these accounts.
• Credit utilization – What is CIBIL score and its role in credit? Your credit utilization should stay within 30% if your available credit. Credit utilization measures the total credit you have taken versus the total available credit you have. Ensure that your credit utilization is lowered over a period of time so that your CIBIL score improves. This can be done by simply paying a little more than the minimum amount every month. If you do this regularly, your available credit limit may be increased automatically by the bank based on your financial discipline.
• Credit mix and credit duration – If you have taken an unsecured loan for a higher tenure versus a secured loan for a lower tenure, it has a bearing on your CIBIL score. The former may decrease your CIBIL score initially, and may drastically lower the CIBIL score if payments are missed. The latter also does the same, but if payments are made on time, your CIBIL score could shoot up into higher rankings. A CIBL score check free may reveal the facts after some time. So ensure that you stop being a risky borrower. Instead, if you do have to take an unsecured loan, try to take a lower loan for a higher duration or a higher loan for a lower duration.

Why should you care?

No banks or financial institutions in India grant loans without a CIBIL score.

Being creditworthy is important for many allied processes such as renewal or issue of passport.

Even if you are traveling abroad, a bad credit score could fetch you lot of problems. You may not be granted a travel card or travel insurance. So now that you know what is CIBIL score, it’s time to watch your money and yourself even more. 

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