Everything You Should Know About Your CIBIL Score

A CIBIL score or credit score is a numerical expression of an individual’s credit record based on the information sourced from credit bureaus like CIBIL TransUnion, Experian, Highmark and Equifax. While evaluating a loan application, this is one of the most crucial factors that lenders usually assess right at the start. The scores denote the potential risk of lending money and safeguard lenders against losses due to bad debt. The credit score composition is mainly based on a person’s loan repayment behaviour. 

What Is a CIBIL Score?

Credit bureaus collect vital data such as history of loans, total available credit balance and the duration of loan while reviewing an individual’s credibility and generating credit scores. Your CIBIL score is a three-digit number ranging from 300 to 900. A high score represents a good credit history. Hence, closer your score to 900, better your creditworthiness. On the other hand, a lower score indicates poor credit history. Credit scores play a critical role in the loan approval process as the first screening criterion.  

What Is a Good CIBIL Score?

Generally, a CIBIL score of 750 and above is favoured for easier processing and approval of loans. A score in this range qualifies loan applicants for the most competitive loan deals. However, if your score is below 750, you may have to contend with loans at higher rates of interest raising your total cost of credit.  

Also Read: Know What CIBIL Score Is Considered Good for a Home Loan 

CIBIL Score Range

The table below indicates what each range of CIBIL score signifies while trying to avail loans: 

​​​CIBIL Score	Creditworthiness	Probability of Availing Loans
​​​Less than 600	Needs attention	Low
​​​600 – 649	Doubtful	Difficult
​​650 – 699	Satisfactory or fair	Possible
​​700 – 749	Good	Good
​​​750 – 900	Excellent	Very high

 

Benefits of a Good Credit Score

A good credit score is your gateway to the best possible loan offerings as mentioned below: 

Easier Loan Sanctions

Upon receiving a loan application, lenders examine your credit score and credit records to understand how you handle your finances. If they are satisfied with your CIBIL score, they will approve and sanction your loan. A good score will fetch you quicker loan approvals, while a poor score could lead to stringent verification measures and, in some instances, loan rejection.

Faster Loan Disbursal

Following quicker loan approvals, applicants with the right credit scores can expect faster disbursal of their desired loan amounts to conveniently use as per requirement.

Lower Interest Rates

Ideal CIBIL scores give you more lender options and negotiating power to bag attractive interest rates and terms.

How to Maintain a Good CIBIL Score?

One can maintain a good credit score through consistent financial practices by following these steps:

• ​Pay your EMIs and credit card bills on time to build a good track record 

• Cancel dormant credit cards and retain the number of cards depending on actual usage 

• Use just one credit card or set payment reminders for bills and loan EMIs to efficiently manage credit repayments  

• Clear the outstanding bills in full each time to avoid accumulating extra interest 

• Do not apply for loans and credit cards in quick succession if you have been rejected on several counts 

• Avoid applying for a number of loans around the same time 

• Select loan tenors after careful deliberation and try to make part-prepayments whenever possible 

• Keep track of your credit record and the credit score frequently. If needed, ensure necessary steps to improve the score. Check for any inaccuracies and errors in the report and immediately rectify them.  

How exactly is the CIBIL score calculated?

A number of elements come into play during the CIBIL score calculation. The table below indicated the 4 factors and  weightage  of each. 

​​Factors	Weightage
​​Payment History	30%
​​Credit Exposure	25%
​​Credit Mix and Duration	25%
​​​​​Other Factors	20%

​Let's learn more about each factor in detail.

Credit History

Credit history has 30% weightage in the calculation of CIBIL score. Banks and financial institutions send personal and credit information to the credit bureaus where they are collated into a credit report and assigned a credit score. Credit bureaus can view the monthly records of your EMI and bill payments for the last three years. The records show the status of each account - outstanding or settled -  and whether there have been defaults or delays in payments, which can adversely affect your credit score.  

Credit Utilisation

Credit utilisation ratio shows the amount of money one has used with respect to one’s credit limit. If you do not keep a manageable ratio; then over a period of time, an elevated credit utilisation will add to your burden of debt garnering a poor credit score. Credit utilisation comprises 25% of your credit score. 

Credit Mix and Duration

The composition of your credit portfolio, also known as the credit mix, makes up 25% of your CIBIL score. It includes the number of secured and unsecured loans of long and short tenors availed over the years. If you have more secured loans, it boosts your score. In comparison, obtaining more unsecured loans leads to a lower score. 

Other Factors

Other aspects like the number of credit applications made in the past and similar considerations account for the remaining 20% of your credit score. A high number of applications creates a negative impression lowering your score. 

Credit Score Mistakes You Should Avoid

Individuals should steer clear of a few common mistakes listed below to conserve their credit score: 

• ​Do not hold too many unsecured loans in the credit portfolio 

• Never delay or miss credit and loan payments 

• Avoid making multiple or unnecessary loan applications 

• Don’t overstep the available credit limit 

How to Check Your Credit Score

The Reserve Bank of India mandates that all four credit bureaus provide a free CIBIL score check once a year. Interested individuals can visit the bureau and request for their score through postal or online services. You may be asked to furnish certain documents for verification during this process. 

Also Read: Step-by-Step Guide to Check CIBIL Score Online 

Factors That Impact Your CIBIL Score

In order to manage one’s credit score effectively, it is important to be aware of the factors that can affect your credit score. These include: 

• Your income 

• Existing debts 

• Past credit repayments 

• Any defaults, delays or lapses in repayment 

• Rejection of loans  

Individuals should always keep a high credit score to easily receive higher amounts of funding on their own terms. Therefore, one should try to maintain a good CIBIL score by adopting smart financial habits. Bear in mind, even with the ideal CIBIL score, it is still essential to scout around for the loan schemes of various other lenders. Carefully study and compare their loan offerings and interest rates. Check the eligibility criteria, documentation, additional charges, and other relevant requirements. This way, you can choose the right lender and the perfect loan scheme that caters to your priorities.