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What is a cibil score made up of ?

A credit score is the quantified assessment of the creditworthiness based on the financial records of the individual. It signifies the credit standing based on the repayment record of credit cards, loans etc. taken from banks and non-banking institutions.In India, there are four major agencies which determine the credit score of the individuals which are Experian, TransUnion CIBIL, Highmark and Equifax.

What is CIBIL Score?

Credit Information Bureau India Limited or CIBIL quantifies the financial data of the individuals, collected from various banks and non-banking institutions in a three-digit number ranging from 300 to 900, where 900 is considered as the highest CIBIL score. While a credit score for availing different kinds of the loan may vary from institution to institutions and the type of loan product, however in general, a credit score of 650 or above is considered an appropriate score to get the credit. 

How is a credit score calculated?

 To calculate the credit score, the credit agency analyses the financial record of the past six months on the defined parameters. The data connected with the loans, credit cards and investments made by the individuals are analysed, processed and then represented in the credit report.

Parameters for calculation of credit score: It is essential to note that every variable used for determining the creditworthiness of the borrower has its defined weightage.

  1. Track record of past payments:  The credibility of the borrower is primarily determined by the capacity to pay the debts. If the borrower makes all the payments of all credit taken such as a loan such as a home loan or a personal loan on time, then it will improve the credit score. Similarly, on the other hand, if the borrower fails to make the payments on time or turns into a default, then the credibility of the person gets affected, thus leading to the poor credit score.

Important: It is crucial to know that the CIBIL calculates the credit score based on the past debts of the previous 6 months. However, any repayments made on a timely basis or any default in repayments in the recent history has a far more considerate impact then transactions performed in the past.

  1. Debt to income ratio: Another factor in determining the credit standing of the individual is the debt-income ratio. If the individual has taken multiple loans and the sources of income are less as compared to the debts taken, then it indicates the poor credit score. It is because the individual may fail to repay the loans on time if the borrowers have a high loan balance. Similarly, if the ratio of the debt-income is low, which means that the debt taken in consideration of the level of income is less, then the individual will have a good credit score.
  1. Type of loan taken: If the individual has taken many debts in the form of unsecured loans such as a personal loan, then he would have a poor credit score. To maintain a good credit score, an individual should take a considerate mix of secured and unsecured loans.

Important: If you repaid the secured loans on time, then it would lead to a good credit score.

  1. Types of enquiries made: There are two types of enquiries made on loans, hard enquiry and a soft enquiry. A soft inquiry is made by the lender or the borrower to know about the credit history, and it does not appear on the credit report. On the other hand, a hard enquiry made by you or the lender appears on the credit report when you have applied for any credit or loans. It hurts your credit score.

Important: If you are making multiple hard enquiries, then it indicates that you are hungry for the credit.

  1. The utilisation of credit cards: Credit cards are an essential tool to build or lose your credit score. If you always make the credit card payments on time, then you will have a good credit score. On the other hand, missing the credit card payments or if a credit card company takes away the credit card, then it will affect your credit score severely. Also, having a low credit utilisation ratio in credit cards is the key to maintain a good credit score.

Important: If you are losing the hold of credit cards very frequently, then you will have a poor credit score.


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