What is the meaning of the CIBIL™ Score

What is a CIBIL™ score?

CIBIL™ scoreis the three-digit score issued by TransUnion CIBIL™ that rates the creditworthiness of a person. This score is issued after considering many factors like the payment history of the person, loans or credit cards taken by the person, credit utilisation rate, etc.

The CIBIL™ score ranges from 300 to 900. CIBIL™ score which is 750 or above can be considered to be a good score as per the lenders. Such a score will provide applicants with loans and credit cards relatively easily and also instantly in most cases.

Many lenders also provide pre-approved loans for persons with a good credit score along with many other applicable factors. Many lenders also provide credit cards and loans to persons with credit scores lower than 750. However, the rate of interest for such loans is generally higher or such person may be eligible only for a lower quantum of loan or credit card limit.

Is the credit score the same as the CIBIL™ score?

The credit score issued by TransUnion CIBIL™ is known as the CIBIL™ score. 

The credit score is the credit rating issued by a competent credit rating agency. India has four authorised credit rating agencies that issue credit score for applicants. These agencies are,

• CIBIL™
• Equifax
• Experian
• CRIF Highmark

Why do lenders use CIBIL™ score?

Lending is the main function of any bank or financial institutions. Lenders have set many eligibility parameters for a person to qualify for their loan products. Among such qualifications, the credit or CIBIL™ score is a key factor to influence the eligibility criteria of the borrower for any loan product. It helps a lender to provide loans to eligible borrowers and safeguard their interest against potential losses or non-performing assets.

What are the factors affecting the CIBIL™ score of a person?

There are many factors that affect the CIBIL™ score of a person. Some of the main factors are mentioned below,

Default in payment history of a credit card or loan

Loans and credit card payments are the biggest contributing factors that determine the credit score of a person. When a person defaults in payments of EMIs of the loan taken or the credit card dues, the credit score of such person is affected and is negatively impacted.

The higher credit utilization ratio

An ideal credit utilization ratio is 30% of the total credit limit. When a person has a higher credit utilization ratio, the message sent to credit bureaus is that the person is unable to manage his/her finances optimally and relies heavily on the credit from external sources. Thus, the credit score of the applicant is impacted negatively.

Default as a guarantor

The credit score is also affected negatively when a person agrees to be a third party guarantor for any other person and is unable to meet such obligations.

Additional Reading: What are the factors that affect your credit score?

meaning of the CIBIL™ Score FAQs