All about CIBIL Score and how is it calculated
Your CIBIL Score has a great role in deciding your loan approval. Therefore, you must know how it is calculated. There is a technical algorithm for calculating it, but its components are largely based on your loan repayment habits.
What is a CIBIL Score?
It can be defined as a three-digit summary of your credit history, based on the information in the ‘Accounts’ and ‘Enquiries’ sections of your CIBIL Report. This information includes your loan accounts, credit cards, payment status, outstanding payments, number of days of delay in making payments, and so on. Basically, your Credit Score is a measure of your credit-worthiness on the basis of your loan and repayment records, as per your lenders.
Your CIBIL Score is expressed in numerals of 300 to 900. The higher the number, the greater your chances of your loan application being approved, and statistics prove it. 79% of approved loans go to applicants with CIBIL Scores higher than 750.
How is your CIBIL Score calculated?
There are four factors that affect your CIBIL score.
1. Payment history:
Defaulting on payments and EMIs has a negative effect on your CIBIL score, so ensure timely payment to score higher.
2. Credit mix:
A balanced set of loans, i.e. secured and unsecured, tends to impact your CIBIL Score positively.
3. Number of enquiries:
Your loan enquiries get recorded in both your credit score and report. A lot of enquiries would indicate that your loan liabilities might increase in the period to come, which works against a good CIBIL Score.
4. Credit usage:
High utilisation of credit money shows an increasing debt over time and can affect your score very negatively.
What can you do to earn a good CIBIL Score?
The actions you take today can make or break your credit footprint for the future since your CIBIL Score takes into account your credit history and payments. Here are some steps that you can take for a good score.
- Avoid late payments. Try to borrow only to the extent that you can pay back on time.
- Control your credit usage. Make wiser purchase decisions and maintain a low amount of credit.
- Maintain a healthy mix of secured loans (vehicle loans, home loans, etc.) and unsecured loans (credit cards, personal loans, etc.). A large number of unsecured loans has a negative impact.
- Keep a check on how often you apply for credit. Continuously seeking credit in excess is not a good indicator for your score.
- Here comes the tricky part. If you have joint loan accounts, your account partner’s actions can impact your credit history. If they are negligent, you cannot afford to be. You need to keep track of the account on a regular basis. The same goes for accounts that you co-sign or guarantee. If payments are missed, the responsibility falls equally upon your shoulders as well.
- Check your credit history multiple times in a year. Keep track of your CIBIL Score and CIBIL Report to check for discrepancies and incorrect information, if any. In case there is any, you can raise your concerns through the CIBIL website or request the relevant lender to report a correction to CIBIL. Moreover, knowing your CIBIL Score at all times saves you from loan rejections as it helps you decide when and where to apply.
Start striving for a good CIBIL score, now!
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