Have you ever wondered what a CIBIL score is? This is a key term that most of us have heard, yet there remains a shroud of mystery surrounding its definition and calculation. Let us dive deeper into these aspects below.
What is a CIBIL Score – Calculation Procedure and More
The CIBIL score is essentially your credit score. It indicates your creditworthiness or in financial terms, your creditworthiness. Why it matters is that whenever you apply for a credit card, no-cost EMI card, or loan, the bank or financial institution insists on checking this score and your overall credit report/history. The calculation of the score depends on multiple aspects, including your credit utilisation, history, repayment behaviour, and more. However, let us take it up a little later.
Let us first look at a few basic pointers that are worth noting in this regard:
- It is a three-digit score (numeric) that depicts your creditworthiness or history.
- The calculation is done by the Credit Information Bureau (India) Limited or CIBIL.
- This score shows your financial management and repayment of your debts/loans.
- The score threshold is 300-900.
- Aim for 750-900, which is regarded as excellent.
- 650-750 is perceived as good, while anything around 550-650 is average. A score below 550 is mostly seen as poor by financial institutions.
Calculation Framework for CIBIL Score
Now that you have an idea as to what a CIBIL score is, here is an in-depth understanding of the calculation methodology.
It essentially accounts for the borrower’s credit profile over recent months.
- Payment history takes up around 30% of the CIBIL score. It shows whether you are consistent in loan repayment or not.
- Credit exposure, including outstanding debt and credit utilization ratio, contributes 25% of the total CIBIL score.
- Credit duration and mix is the third component that contributes an average of 25% to the overall score. It takes into account the type of credit you possess and the duration for which you have had the same.
- New credit inquiries and the opening of new credit lines contribute around 10% to the total CIBIL score.
Concluding Notes- How to Boost Your CIBIL Score
Improving your CIBIL score is not that hard, provided you follow these tips from the outset:
- Keep reviewing your score and credit history periodically.
- Look out for possible errors in your credit report and get them rectified.
- Ensure you clear your EMIs and other credit card dues well before their due dates. There should not be any misses or defaults.
- Maintain a higher proportion of home and other secured loans to unsecured loans like personal loans.
- Monitor joint accounts closely.
- If you have become a guarantor to any loan, check that the EMI is repaid without any defaults.
