How is the CIBIL™ Score calculated?

You may have come across CIBIL™ scores especially if you have been borrowing for some time. Most people tend to consider the CIBIL™ score as only a reference number and do not go into the details. Have you ever wondered, how is your CIBIL™ score calculated? Do you get inquisitive about understanding the calculations that go behind your credit score?

If you are a borrower, it makes sense to ask these questions and keep yourself updated about these details. It can help in contesting your credit score and report in the future, especially if your report shows a poor credit score. Let’s look into the details behind CIBIL™ score calculations.

What is a CIBIL™ score?

A CIBIL™ score is a 3-digit number between 300 and 900 that is a snapshot of your credit-worthiness. There are four established credit rating agencies in India that issue credit scores and credit reports - CIBIL™, Equifax, Experian and High Mark. The credit scores of all three bureaus are equally valid, though the CIBIL™ score is perhaps the best-known.

How to calculate CIBIL™ score?

Your CIBIL™ score is calculated based on all your credit-related activity within the financial system. Member banks and other financial institutions of the credit bureaus submit credit information regarding their customers on a periodic (usually monthly) basis. Following are some of the details included:

• All payments including any late or missed payments
• Loans and credit card applications approved
• Credit limit and credit utilisation
• Status of credit accounts (including Settled or Written Off accounts) 

All this data is then subject to complex statistical analysis and your 3-digit credit score is calculated based on your credit records.

What are the factors impacting Your CIBIL™ score?

There are a variety of factors that go into calculating your credit score and it is important to focus on these areas when trying to improve your score. Here are the common factors that have an impact on your credit score:

• Payment history: Making late payments or defaulting on your EMIs hurts your score.
• Credit mix: Having a balanced mix between secured loans and unsecured loans is likely to have a positive impact.
• Multiple enquiries: Too many loan enquiries may hurt your score as it indicates that your loan burden may go up in the future.
• High credit utilisation: A high credit utilisation limit indicates a rising debt burden over time and may negatively impact your score.

Other factors that play a role in your credit score include your credit utilisation ratio (how much you spend every month as a proportion to your total credit limit), the age and type of your credit accounts (the older the account, the better for your score as lenders have a longer period from which to judge your repayment behaviour), and the number of enquiries from lenders (which reflects the applications you have made for loans and credit cards).

How to check the CIBIL™ score online?

Checking your CIBIL™ score is easy and it can be done online. You can either visit the CIBIL™ official website and check your credit score or you can do so here on the CreditMantri website.

Here are the steps to be followed for checking CIBIL™ score on the official website:

• Click on the ‘Get Your Credit Score’ or ‘Check my CIBIL score’ option.
• Fill in the details like PAN, identity proof, etc and check the CIBIL™ score by PAN card.
• Click on ‘Proceed to Payment’.
• Make the payment as directed.
• Your CIBIL report and score will be emailed to your address within 24 hours or to couriered to your shipping address in case you choose to receive a hard copy.

How can you work towards a high CIBIL™ score?

Your CIBIL™ score is dependent on your credit history and credit behaviour. It also impacts your access to credit in the future. Your credit-related steps today can help in building a stronger and healthier credit future. Here are a few useful tips on improving your score:

• Always make payments on time. Late payments will hurt your CIBIL™ score.
• While using credit, be prudent. Always maintain a low credit utilisation ratio for a good score.
• Choose a healthy credit mix of secured (like home loan and auto loan) and unsecured loans (like a personal loan and credit cards).
• Apply for new credit judiciously and only when needed. Frequent credit applications could indicate that you are credit hungry and negatively impact your score.
• Keep a close eye on your co-signed, guaranteed and joint accounts every month. In joint ownership, you will be equally liable for payments and any negligence could impact your ability to easily access future credit.
• Frequently review your credit history. Closely monitor your CIBIL™ Score to avoid unpleasant surprises later. Checking your credit report regularly can also help in avoiding possible inaccuracies in the report. In case of any discrepancy, you can log a dispute on the CIBIL™ website.

How does credit score impact the loan approval process?

Apart from learning how do I calculate my credit score, you should also know how it impacts the loan-approval process. A credit score higher than 750 is considered a good score. It indicates that you have a good credit track record and can fulfil your loan obligations on time. A low credit score indicates that you do not have a good history and there is a higher chance of loan default.

Potential lenders will look at your credit score to evaluate whether to approve your application. Most of the loans are sanctioned to individuals who have a credit score of 750 or above. Here are some of the other benefits of a good credit score and how it can impact future loans:

• Lower interest rate
• More loan sanctioned
• Longer loan tenure
• Fast approval process/relaxed documentation
• Higher card limit

Conclusion

Each credit bureau has a different set of mathematical formulae with varying weights for all components. As a general rule, you can remember that about one-third of your credit score comprises your repayment history. Your repayment track record is the most important factor that influences your credit score. Therefore, focus on how you make your repayments to have a better CIBIL™ score.

CIBIL™ Score calculated FAQs