How Is Your CIBIL Score Calculated

Wondering what a CIBIL score is? Well, it is a 3-digit number that lending institutions use to determine a loan applicant's creditworthiness. Credit bureaus calculate the CIBIL score based on your credit history and overall credit-related behaviour. If your score is high, loan providers feel safer lending you a bigger loan amount for a longer repayment tenure. Since the deal has a lower risk, they try to attract you by offering you a competitive interest rate.

Therefore, when planning to apply for a loan, check your CIBIL score and ensure it meets the lender’s minimum score requirement to get the best loan deal.

What is the CIBIL Score?

Whenever you apply for a loan, your credit score is the first thing the loan provider checks to decide whether to approve your loan application. The higher the CIBIL score, the higher your credibility in the eyes of the lender. Most lending companies expect a score of 750 or above, which signifies your overall credit behaviour in the past. Those who handle credit responsibly gain the lender’s trust and have a higher chance of getting approval with lower interest rates and favourable terms and conditions. Therefore, before applying for a loan, calculate your CIBIL score for free online and ensure you have a decent one.

How is the CIBIL Score Calculated?

Most lending institutions have an online credit score calculator you can use to calculate your CIBIL score. You can also visit CIBIL’s official website directly to perform the action. Want to know how the CIBIL score is calculated? These are the steps to follow:

• Visit the CIBIL website.
• Select ‘Get Your Credit Score’ or ‘Check my CIBIL score’.
• Select your CIBIL subscription.
• Enter your PAN card and other identity information.
• Hit ‘Proceed to Payment’.
• Make the payment using your preferred payment method.
• Receive your CIBIL report with your score via email.

A CIBIL score calculator calculates your credit score based on several factors, including your repayment history, outstanding credit balances, debt-to-income ratio, credit utilisation ratio, and other parameters. Therefore, handling credit responsibly is advisable to build a decent score that improves your loan eligibility.

What Should You Do to Increase CIBIL Score?

Want to know how to improve your credit score? Here are a few tips to increase your CIBIL score gradually:

• Use Credit Responsibly: Always repay the due amounts to your credit providers, including loan EMIs and credit card bills. Only borrow what you can afford to repay. Use loans and credit cards wisely, considering your repayment capacity.
• Avoid Missing or Delaying Payments: Apart from paying late payment penalties, such payments also appear on your credit report and affect your CIBIL score calculation. Set up reminders for multiple loan EMIs and credit card payments or consolidate them to manage them better.
• Reduce Your Credit Utilisation Ratio: Although credit cards and lines of credit offer ample credit limits to credit users, avoid utilising more than 30% of the available limit. When you apply for a loan, the lenders will assess your CUR to determine your creditworthiness. They also check your debt-to-income ratio, which should be 30-40% of your income.
• Close Unpaid Accounts: If you still maintain unpaid accounts in your profile, consider paying them off and closing them with repayment or settlement.
• Review your credit report: Check your credit report to identify any errors. If you find some, report them to the credit bureau for rectification.

Factors on Which Your CIBIL Score Calculation Depends

A credit score calculator calculates your CIBIL score based on several factors, including

• Repayment history
• Credit utilisation ratio
• Credit mix
• Number of active credit lines
• Number of hard enquiries

Let’s look into the details:

Repayment History

Your repayment history is one of the most crucial factors affecting your credit score. Missing the repayments leads to penalties and reduces your credit score. Therefore, always make your EMI and credit card bill payments on time to maintain a decent credit score.

Credit Utilisation Ratio

Credible borrowers may get an ample credit limit on credit cards and lines of credit. However, that does not mean you should spend it all. Using the entire available credit limit will increase your debt burden and boost your credit utilisation ratio, projecting you as a credit-hungry borrower. Use credit only when needed and remember to repay on time.

Credit Mix

Diversifying your credit portfolio with different types of credit will show that you can handle credit efficiently. Therefore, maintain a diverse credit mix in your portfolio with secured, unsecured, short, long, and other types of loans. Also, get credit cards and lines of credit to maintain diversity.

Number of Active Credit Lines

Too few or too many credit lines are detrimental to your credit portfolio. Borrow only what you can repay and make repayments on time to build a strong credit history.

Number of Inquiries Made by Credit Agencies

Whenever you apply for credit, the credit agency pulls a hard inquiry on your credit report, which reduces your credit score by a few points. Too many inquiries within a short period demonstrate credit-hungry behaviour, reducing your eligibility for more credit.

What is the Ideal CIBIL Score You Should Have?

The ideal CIBIL score you must have depends on the type of loan you want to apply for. Here is a credit score scale of standard CIBIL score requirements.