How is the CIBIL score calculated?

A credit score is part of the Credit Information Report (CIR) that is made available by credit bureaus, such as CIBIL.

So are you wondering how to improve your CIBIL score? Let us then take a look at the major parameters basis which the scores are calculated.

Aging of your loan accounts – If you have a long standing account that is serviced regularly and responsibly, i.e. with timely and complete payments, it can affect your score positively.

Number of late payments or defaults – Making late payments towards outstanding loan EMIs or credit card payments, or defaulting on payment can hamper your score. This indicates that you have possibly had trouble with servicing your debt. It is always prudent to not only make payments on time, but in full.

Number of inquiries – Every time you apply for a loan or card, the concerned institutions run a check on your credit report to enquire about your credit history. Frequent applications therefore can negatively affect your score.

Right credit mix – Simply put, this refers to the mix of secured (such as home or auto loans) loan products versus unsecured loan products (personal loans and credit cards) that you have availed of. A healthy mix of both helps keep your score on track.

Credit card limit – A high utilisation of your card limit flags off to a lender that you may not be solvent. Ideally, try not to utilise more than 30% of your existing limit, this will ensure that your score doesn’t get hit. Also, do make your payments in full, as even a gradual increase in outstanding will affect your score negatively.

Written off cases – If you have any previous loans written off, do make sure you have relevant documentation handy, as written off loan accounts impact your score negatively.

The score is calculated considering the above factors, basis which a number between 300 and 900 is assigned. With CIBIL for example, a score of 750 and above is considered to be a ‘good’ score. In order to increase the CIBIL score and ensure that you will get a loan or card without any trouble at competitive rates, should you really need one, do keep these pointers in mind!

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