The CIBIL score is a 3-digit numeric summary of an individual's credit repayment history. It is a score assigned by the Credit Information Bureau (India) Limited, or CIBIL. This score plays a significant role in determining the creditworthiness of a borrower. Financial institutions use this score to decide your loan eligibility, amount, and rate of interest.
The CIBIL score ranges from 300 to 900. The closer an individual is to 900, the better the chances of availing of a loan at favourable terms.
The credit rating company TransUnion CIBIL calculates credit scores based on the ‘Accounts’ and ‘Enquiry’ sections of a CIBIL report. To know how a credit score is calculated in India, check the key points below:
1. Payment history
When it comes to credit score and particularly CIBIL score, payment history has the most weightage. If you have been paying your outstanding dues such as loan EMIs and credit bills in a timely manner, then your CIBIL score increases. On the contrary, if you are irregular in your payments or have defaulted previously, it affects your CIBIL score negatively.
2. Credit Exposure
Also known as the credit utilisation ratio, credit exposure is the second biggest factor after payment history, influencing your CIBIL score. It is simply the amount of credit you use in proportion to the credit limit allocated to you. It is advisable to keep the spending under 30% of your credit limit to have an optimum contribution to the CIBIL score.
3. Credit Type and Duration
It is recommended to have a healthy credit mix of secured and unsecured credits such as personal loans and credit cards. Not just that, it is helpful to have a long history of timely repayments in order to boost your CIBIL score.
4. Hard Inquiries
Lenders obtain your CIBIL report from credit rating agencies whenever you apply for credit, such as a Home Loan or a credit card. Such inquiries fall into the category of hard inquiries. Multiple hard inquiries hurt your CIBIL score. Hence, avoid applying for multiple credit lines simultaneously.
Conventionally, a CIBIL score of above 750 is considered ideal for approval for any credit. However, for unsecured credits such as personal loans, a higher score may be required to compensate for the absence of a collateral. On the other hand, for secured credit such as Home Loans, a CIBIL score of 750+ can increase your chances of approval if other eligibility criteria are in place.
| Your CIBIL Score | How it translates to the lender |
|---|---|
| 800 - 900 | An excellent score range that Indicates that you have never defaulted on your EMI and credit bills payment. |
| 750 - 800 | A very good CIBIL score. You can now negotiate and bargain on your interest rate. |
| 625 – 750 | You have a decent credit history with very few irregularities. You may get a loan but at a higher interest rate. |
| 300 – 625 | This score indicates high frequencies of defaults and irregularities. You may find it very difficult to get a loan unless you improve your CIBIL score. |
Anyone who wants to improve their CIBIL score to avail of a Home Loan can refer to the CIBIL score calculation formula and take note of a few tips to improve scoring accordingly. Below are some of the tips to consider.
- Clear existing debts and pay credit card bills and EMIs on time
- Keep credit utilisation ratio below 30%
- Maintain a healthy mix of secured and unsecured credits
- Limit credit inquiry to a minimum
- Mention all income sources
Practising healthy credit habits will help you improve your CIBIL score and increase your loan eligibility. With a high CIBIL score, individuals can enjoy competitive interest rates and better loan terms. After performing CIBIL score calculations, borrowers can improve CIBIL score by knowing the factors that affect their score.
Frequently Asked Questions
Credit Information Companies calculate and generate CIBIL scores basis the consumer credit information provided by member lending institutions to them on a monthly basis.
No, credit score is calculated on a monthly basis.
The credit score required to apply for any loan depends on the lender. Generally, a credit score above 750 is considered ideal for applying for a Home Loan.
Yes, a loan rejection will have a negative impact on your CIBIL score.
