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CIBIL score is a three-digit numeric summary of your creditworthiness, ranging from 300 to 900, with 300 being the lowest and 900 the highest. Lending institutions rely on this score to determine whether or not an applicant is eligible for a loan or credit card. CIBIL scores are generated by credit bureau TransUnion CIBIL Limited using the credit history listed in the Credit Information Report. The report contains information about credit payment history across loans, credit cards and overdraft facilities over a period of time.
About TransUnion CIBIL - TransUnion CIBIL Limited (formerly known as Credit Information Bureau (India) Limited) was established in the year 2000. It is the premier agency for providing CIBIL scores and CIBIL reports. The credit bureau maintains the records of all credit-related activities like loans and credit cards of individuals and companies. These records are submitted by financial institutions on a periodic basis, and based on this data, the credit bureau issues the reports and scores.
To generate your CIBIL score, the credit bureau takes into consideration what is listed in your CIBIL report. The following factors are taken into account while calculating your CIBIL score:
Credit history: Your repayment history holds the highest weightage of your CIBIL score. Banks and other financial institutions send credit-related information, such as payments towards your bills and EMIs, to the credit bureau on a monthly basis. Your CIBIL report will show the status of each account, whether it has been settled, written off or left outstanding. The report will also mention details pertaining to past dues (if any). If you have ever delayed or skipped an EMI or credit card payment, it will be reflected on your credit report and cause your CIBIL score to drop. To ensure this does not happen, always make sure to clear all your bills on time.
Credit utilization: Credit utilization is the amount of credit you are using as against the total credit you have available. Ideally, your credit utilization should not go beyond 30%. Ensuring that your credit utilization rate goes down over a period of time will help boost your CIBIL score. This can be done by paying more than the minimum each month on your credit card, increasing the credit limit (but not your spending) and opening a new credit card (again, keep your purchases limited). You could also consider switching to a debit card or cash for making regular purchases if your aim is to lower your credit utilization rate.
Credit mix and duration: The kind of credit you have taken - secured or unsecured, and the duration of credit history play a considerable role in determining your CIBIL score. If the proportion of unsecured credit like personal loans and credit cards is high, you will be seen as a risky borrower. An increase in the share of secured loans, such as home loans and car loans, will help increase your CIBIL score. In case you hold multiple secured and unsecured loans and are mulling over pre-paying them, a better solution would be to start with unsecured loans.
Additionally, the timeframe for which you have been servicing a particular kind of credit is also taken into account while determining your score. If you have held a loan for a longer period and made timely payments on it, then it will help increase your CIBIL score
Number of hard inquiries : Besides the above-mentioned points, the number of times you have applied for credit will also have an impact on your CIBIL score. Every time you apply for a new credit, keep in mind that the respective institution will run a hard inquiry on your CIBIL report to learn about your credit behaviour. Hard inquiries take a toll on your CIBIL score hence, it is advisable to only apply to those institutions that you are certain will accept your application.
The closer your CIBIL score is to 900, the better chances you have of your loan or credit card application being approved by banks and other financial institutions. High CIBIL scores signify that an applicant is able to pay his or her bills on time and is less likely to default on payments, whereas a low CIBIL score indicates the reverse. It has generally been observed that most lenders tend to accept applications from those holding a CIBIL score of 750 or more.
Here is a quick look at how the loan approval process works when you apply for credit:
What is CIBIL score and CIBIL report?
CIBIL score is a three-digit numeric summary of your creditworthiness, ranging from 300 to 900, with 300 being the lowest and 900 the highest. The number is derived based on the information listed in the CIBIL report.
CIBIL report contains credit-related information of an individual, like borrowing history, payments made, etc. Financial institutions check this report to ascertain an individual’s credit behaviour.
How does the credit mix impact CIBIL score?
The kind of credit you have taken - secured or unsecured, plays a considerable role in determining your CIBIL score. If the proportion of unsecured credit like personal loans and credit card EMIs is high, you will be seen as a risky borrower. An increase in the share of secured loans, such as home loans and car loans, will help boost your credit score, provided you make timely repayments.
What are the factors taken into consideration while determining CIBIL score?
The factors looked into by the credit bureau while assessing the CIBIL score are:
What is the importance of CIBIL score in the loan approval process?
The closer your CIBIL score is to 900, the better chances you have of your loan or credit card application being approved by the bank or any other financial institution. It has generally been observed that most lenders accept applications from those holding a score of 750 of more.
What are the benefits of having a high CIBIL score?
Having a score as close to 900 as possible can help you negotiate better interest rates on the amount you wish to borrow, avail higher loan amount, get approval for credit quicker, easily get approval for higher card limit and make the documentation process much simpler. Most financial institutions only accept credit applications from individuals holding a CIBIL score of 750 and above.
Will missed payments affect CIBIL score?
Yes, since repayment history has the biggest role to play in determining your CIBIL score, any missed payment can have major repercussions on your credit rating.
Banks and other financial institutions send credit-related information, such as payments towards your bills and EMIs, to the credit bureau on a monthly basis. Your credit report will show the status of each account, whether it has been settled, written off or left outstanding. The report will also mention details pertaining to past dues. If you have ever delayed or skipped a loan or credit card payment, it will be reflected on your CIBIL report and cause your CIBIL score to drop. To ensure this does not happen, always make sure to clear all your payments on time.
How do financial institutions view different CIBIL scores?
A CIBIL score can range from 300 to 900. Here is a breakdown of what different scores mean:
|CIBIL Score||What It Means|
|0 or -1||CIBIL score of 0 indicates that the applicant’s credit history available is less than six months and hence not sufficient to give a score of 300 to 900. This score is also referred to as “NA”. CIBIL score of - 1 means that no information of the applicant’s credit history is available. This score is also referred to as “NA”.|
|300 to 550||CIBIL scores within this range are considered very poor. Chances of applications being approved for a new loan or credit card are very unlikely as lenders view such applicants as high risk.|
|550 to 650||CIBIL scores within this range are fairly decent. It shows that applicants have not performed too bad on repayments.|
|650 to 750||CIBIL scores within this range are considered good and there is a higher possibility that such applications will be accepted|
|750 to 900||CIBIL scores within this range are considered excellent. It shows that the applicant has ensured timely repayments and does not have any negative mark on their CIBIL report.|
How does pre-closure of a loan can affect your CIBIL score?
Pre-closure of a loan means closing a loan account before completion of its repayment period. Pre-closure influences future credit positively. It serves as proof of accountability and reliability, and therefore helps in establishing a good CIBIL score. Pre-closure of loan stays in the credit report for quite a while. When prospective lenders run a credit enquiry on the CIBIL report and CIBIL score, a record of prepayment is viewed as good credit behaviour, since it shows the applicant's ability to repay at the earliest.
Although prepayment sounds like a good option, it is important to note that financial institutions generally tend to levy penalties on individuals choosing to pay back credit via this method. So, make sure to enquire about the associated costs before repaying the borrowed amount in one-go.