CIBIL Score- How Is It Calculated and Why Is It Important?

The CIBIL score ranges from 300 to 900 and reflects the creditworthiness of an individual. Lending financial institutions such as banks and NBFCs decide whether or not to give the credit to an individual based on the credit score. It helps them decide whether the credit given will be repaid on time or not. The credit score of any personnel depends on his/her credit history. 

In India, all the activities and data related to credit scores are maintained by the company named Credit Information Bureau India Limited (CIBIL). The company has all the credit-related records of individuals as well as companies.

CIBIL score is calculated by various bureaus, using their algorithms. But the behavior of the borrower matters the most while calculating the CIBIL score. Let us understand the factors which affect the behavior and are taken into consideration: 

  • Credit History: The most important factor that affects the calculation of your CIBIL Score is your credit history. It includes 30% weightage in the formula while calculating the CIBIL score. The payment track record of an individual is shared by all the banks and other financial institutions. This data is compiled by credit bureaus and the CIBIL score is prepared then.
  • Credit Utilization: Credit utilization level is calculated as your current outstanding loan divided by the total loan for which you are eligible.  The credit utilization weightage is 25% in the formula. 
  • Credit Mix: Having a mix of both secured and unsecured loans is considered to be a good thing. The percentage of unsecured loans in your portfolio should be less than the secured loan, if the unsecured loan is higher it impacts negatively on the CIBIL score. 

It has a weightage of 25% while calculating the CIBIL score. 

  • Other Factors: Along with the above three factors, the number of credit applications filed by the applicant is also considered as bearing while computing the score. If the CIBIL account shows several rejected applications it reflects a lower credit score. These other factors have a 20% weightage in the formula.  

Hence it is very important to apply to selected loan schemes after researching them thoroughly, post-filing the application the applicant can check on the “CIBIL consumer login” section of the website.

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