What is Cibil Score? How to calculate & increase ?


credit-scoreNowadays,  it is very difficult to get a loan from a bank or other financial institution because banks will provide you with a loan only when it is satisfied with the creditworthiness of an individual. The creditworthiness of an individual can be found out with the help of CIBIL Score.

What do you mean by CIBIL score?

CIBIL or Credit Information Bureau of India Limited is a three digit summary of credit information ranging from 300-900. If your credit score is 300, it means you have a lower credit profile and if your credit score is 900, it means you have a stronger credit profile. CIBIL Score plays a very important role in loan sanctioning and credit card approval process and it is looked by the lenders who involve in the transaction process. By looking at your credit score, one can find out your creditworthiness.

How your CIBIL score is calculated?

It is important that credit score should be calculated as it gives a clear indication of an applicant’s ability based on his/her credit history. Listed below are important factors in relation to the calculation of CIBIL score.

  • Your payment history

Your payment history accounts for about 35% of your credit score. It is necessary to maintain a good repayment history. It means that you have to clear all your bills and loans within the due date. If it beyond your due date, then it will affect your credit score.

  • The length of your credit history

The length of your credit history accounts for 15%  It is important for you to make your payments in time for maintaining a good credit score. In this section, your credit history details about how long your oldest and most recent accounts have been established. In general, the lenders like to see whether you are able to handle your credit accounts over a period of time.

  • Number of accounts you have

Your accounts make up for 10% of your score. If you have recently got many loans and credit cards, then your repayment ability is expected to down for any further loans. As a result, CIBIL reflects this as a negative impact on your credit score.

  • The type of accounts you have

Your types of accounts make up to 10%. Having a combination of accounts such as instalment loans, home loans, retail and credit cards may improve your score.

  • Your used credit Vs available credit

Your used credit Vs available credit makes up to 30% of your score. This part analyzes how much of the total credit line is being used on your credit cards and the available credit.

How can you increase your CIBIL score?

Listed below are the effective ways of improving your credit score.

  • Make timely payments on bills and avoid delays. If you are prompt in paying off your credit card bills and other bills, then your credit score will not show any major defaults.
  • Avoid using your entire credit because your credit usage is an important characteristic of a credit score. Thus, your credit usage should be lower to get a healthy score.
  • Always pay your dues in full because,  if there is any remaining amount it will be shown as an overdue in CIBIL score. Therefore, you try to pay the entire amount.
  • If you have too many credit cards, it will become a problem when it comes to payment, because you may not remember the last date for all the credit cards. Missed payments will be a negative impact on your credit history. Therefore, any delay in payments will affect your credit score.
  • It is advisable to have a good mix of secured (home loan, auto loan) and unsecured loans (personal loan, credit card). If your credit portfolio is changed towards unsecured loans, then the lenders may view this negatively. Try to maintain a good credit mix and it will help you to increase your credit score.
  • If you have applied for a loan or a credit card and your application has been rejected, the information will be recorded on your credit report. In such cases do not apply again, Wait until your credit score improves.
  • If you are a guarantor for a person, make sure that he/she has the ability to repay the amount as soon as possible. If the person fails to repay the amount then it will fall onto the guarantor and it will have a negative impact your credit score.

Advantages of Good CIBIL score

Listed below are some of the advantages of having a good CIBIL score

  • You can get credit easily.
  • You can get quick approval for mortgages.
  • You can get credit cards at low-interest rates.
  • You can get easy approval for rented houses and apartments.
  • You can get home loans and car loans at low interest rates.
  • You can get approval for higher limits.
  • You can escape from paying the processing fee.

Reasons for Low CIBIL score

Mostly scores will fall because of the past behaviour of the borrowers. Some of the common errors that affect your credit score are listed below.

  • Outstanding Credit Card balances.
  • Too many loans/credit cards.
  • High credit usage.
  • Delay in repayments.

CIBIL scores play a very important role in your financial part. A bad CIBIL or credit score is not acceptable in any financial institution and it reduces the chance of getting credit. Responsible use of credit, making payments in full on time and having a reasonable number of loans and credit cards will make a positive impact on your credit score.

 

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