How to Calculate CIBIL Score and Contribuiting Factors of it.

Your CIBIL score determines your creditworthiness as a borrower. It is calculated after evaluating key parameters, including payment history, credit exposure, credit type and duration.

An individual's CIBIL (Credit Information Bureau (India) Limited) score determines their creditworthiness – a factor considered every time a bank or a financial institution assesses your loan application. Let us look at how an individual's CIBIL score is calculated, how one can improve their CIBIL score, and the steps to calculate CIBIL score for home loans and personal loans.

What is a CIBIL score?
 

Four major credit bureaus calculate credit scores in India.

• TransUnion CIBIL
• Equifax
• Experian
• CRIF Highmark

Since the credit scores released by CIBIL are the most common, credit score is also referred to as a person's CIBIL score. It is a three-digit number that ranges between 300 and 900.

How CIBIL Score is Calculated
 

The CIBIL score is calculated by taking four factors into consideration. These include payment history, credit exposure, credit type and duration, and other factors. The weightage given to these four factors in calculating a CIBIL score is 30%, 25%, 25% and 20%, respectively.

Payment history

If you are already repaying a loan and have delayed one of your EMI (Equated Monthly Instalments) payments, your CIBIL score will be negatively impacted. Quick tip - Making smart use of your credit card can be vital in giving a boost to your credit score.

Credit exposure 
 

Also called credit utilisation ratio, credit exposure is another factor that affects an individual's CIBIL score. The credit utilisation ratio is the amount of credit an individual uses in proportion to their available credit limit. A high credit utilisation ratio is bad for your credit score and makes it difficult to get a loan.

Credit type and duration
 

Credit history is another factor considered while assessing an individual's creditworthiness. When you have secured as well as unsecured loans in your credit report, it suggests that you have experience handling both types of credit.

Other factors
 

A few other factors, such as the number of unsuccessful credit inquiries, are also considered when your CIBIL score is calculated. Each time you apply for credit, it is reflected in your CIBIL report. Hence, making several loan inquiries in quick succession can harm your CIBIL score. In addition, every time your credit inquiry is rejected, your CIBIL score gets affected negatively.

The closer an individual's CIBIL score is to 900, the higher their chances of getting credit.

Your CIBIL score is made up of four factors
 

Your CIBIL score serves as a crucial factor for lenders when they decide whether to grant you a loan. Four major elements contribute to this score: payment history, credit mix, multiple enquiries, and credit utilisation.

Payment history
 

When you pay your bills or EMIs on time, your CIBIL score benefits. Punctual payments show lenders that you are responsible with your obligations. A responsible individual becomes a preferred customer for banks. So, timely payments can open doors for more loan opportunities.

But what happens when you miss a payment? Your CIBIL score takes an immediate hit. Banks begin to see you as a risky customer. This perception makes it harder for you to get loans in the future. Even a single late payment can cost you. Once a late EMI payment is recorded in your credit history, it stays on your credit report for years, serving as a warning sign for lenders who might consider offering you a loan. Thus, maintaining a spotless payment history is a crucial step in securing a good CIBIL score.

Credit mix
 

The second factor that affects your CIBIL score is the credit mix. It refers to the various types of credit you have, such as secured loans (home loans, car loans, etc), unsecured loans (personal loans), and credit cards. A mix of different types of credit is preferable as it shows that you can manage all of them responsibly.

However, if your loan portfolio leans too much toward unsecured loans such as credit card debt, that's a problem. Your CIBIL score may decline in this scenario. Too many unsecured loans portray you as a borrower who relies too much on high-interest credit. Lenders may agree to offer loans to such individuals but with high interest, fearing default.

So, while maintaining a healthy credit mix may contribute positively to your CIBIL score, do not take on additional credit lines to increase your score. Instead, only borrow what you need and make timely payments. 

Number of credit enquiries
 

When you apply for a loan, the lender typically checks your CIBIL score. This action counts as a hard inquiry. If many such enquiries occur in a short period, your score may drop. Lenders interpret this activity as a sign that you are seeking more debt, which means your loan burden may go up in the future. 

Frequent applications for loans can make you appear credit hungry, a perception that could limit your chances for loan approval. Rather than applying everywhere, it's better to research lenders and pick a few that match your needs. 

Credit utilisation
 

It is the percentage of credit that you use out of the total available credit limit. It's best to use 30% or less of your credit limit to maintain a good credit score. High credit utilisation negatively impacts your score as it signifies an increasing debt burden over time.

What is the ideal CIBIL Score you should have?
 

A higher score increases your chances of loan approval and also makes you eligible for better interest rates. So, what counts as an ideal CIBIL score?

A score of 750 and above is considered a good score. It typically meets the approval criteria for most lenders. Banks and other institutions view this as a sign of responsible credit behaviour. It means you have been paying your loans and credit card bills on time. But remember, a score above 750 doesn't alone guarantee loan approval. Other factors like your income, job stability, and debt-to-income ratio also matter.

For scores below 750, lenders might still consider you for a loan, but perhaps at a higher interest rate. While this range doesn't reflect badly on you, aiming higher can offer you more benefits. 

Having said that, there is no defined or set minimum CIBIL score for Credit Card approval and loans. However, it is still ideal to maintain a minimum CIBIL score of 750 in order to get better offers on Credit Cards and quicker approval on loans. It means improving your credit habits, such as paying bills on time, reducing outstanding debt, and keeping a check on credit card usage. 

How to calculate the CIBIL score for a Home Loan?
 

Wondering why is CIBIL Score calculated for a home loan? Metra Trust and other lenders check an individual's creditworthiness before accepting their home loan request to assert borrowers’ creditworthiness. Follow the seven simple steps mentioned below to check your CIBIL score before applying for a home loan.

• Visit https://www.cibil.com/freecibilscore.
• Click on the 'Get your free CIBIL score' tab.
• Enter the required information as requested on the next page and click 'Accept & Continue.'
• Enter the OTP received on your registered mobile number and click on 'Continue'.
• You have now enrolled on the CIBIL website. Now, click on 'Go to dashboard'.
• Once you land on the homepage, click on 'Member login' to log in to the account that you just created.
• After logging in, the site will display your CIBIL score.

Besides the borrower's CIBIL score, many other factors are considered while calculating the CIBIL score for home loans. Along with a CIBIL score of at least 750 out of 900, a borrower needs to.

• Be at least 21 years old.
• Have a steady history of income and employment.

Any borrower can easily qualify for a home loan if these criteria are met along with a high CIBIL score.

How to calculate the CIBIL score for a Personal Loan?

A personal loan is an unsecured loan, meaning you need not pledge any collateral to apply. However, you need to maintain a good CIBIL score to avail yourself of a personal loan. If you are curious about how is CIBIL Score calculated for a personal loan, the procedure is the same as described above.

How do I check CIBIL score by PAN card?
 

To check CIBIL score online by PAN number, follow these steps-

• Log in to the official CIBIL website.
• Click on "Get Your CIBIL Score".
• Enter your personal and financial information.
• Choose PAN as your ID type and enter the number.
• Make the necessary payment for accessing your CIBIL score. 
• After payment, you should receive your CIBIL score and credit report. 

How to improve one's CIBIL score?
 

If your personal loan or home loan has been recently rejected owing to a low CIBIL score, you can start working on improving your score right away. Here is a list of some useful ways to improve your CIBIL score to get a loan approved.

• Timely payments: Make it a habit to pay your bills and EMIs when they're due. Late payments bring down your score, but timely payments can rebuild it.
• Check credit reports: Regularly monitor your credit reports for errors. Incorrect data can harm your score, so resolve these issues within time to avoid potential future complications. 
• Balance loan types: Maintain a balance between secured and unsecured loans. A balanced mix demonstrates you can handle various debt kinds, which may send a positive signal to lenders.
• Secured credit cards: Most credit cards require having a good credit score. However, if you don’t have a credit score, consider opting for a secured credit card like the FIRST WOW! Credit Card to start building it. Secured credit cards are issued against fixed deposits as collateral. As such, they do not require credit scores to qualify for them. Over time, with timely payment and responsible use, you can build a good credit profile to take advantage of better loan rates and premium credit products in the future. 
• Limit inquiries: Whenever you apply for credit, a lender will check CIBIL score to evaluate your creditworthiness. Multiple checks within a short period can be a red flag, signalling possible financial distress and elevated credit risk.
• Increase your credit limit: If a bank offers a higher credit limit, accept it. This doesn't mean you should spend more. In fact, maintain or even reduce your spending. By having a higher limit and using a smaller percentage of it, you demonstrate better credit management skills. This behaviour can positively influence your CIBIL score.
• Opt for a longer loan tenure when possible: With more time to repay, you face smaller monthly payments. Consistency in paying them will help build a strong repayment record, which will ensure your CIBIL score increases.
• Co-sign cautiously: If any of the co-signers/joint account holders default on their payment on the loan, your score will suffer too. Exercise caution and only co-sign for people you fully trust. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.