CIBIL Score Calculation

CIBIL score calculation depends on your past credit history and it determines your creditworthiness. The four major credit bureaus or Credit Information Companies (CICs) of India calculate, generate, and issue the credit scores of individuals by using their unique statistical algorithms.

TransUnion CIBIL also calculates and issues the CIBIL score by using its algorithm. There is no specific mathematical formula to calculate credit scores and it varies from bureau to bureau. Credit score, also commonly known as CIBIL score, is calculated based on your past credit behaviour and is considered as the most important component of your credit report.

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Factors on which CIBIL Score Calculation Depends

A good credit score doesn’t imply that your loan or credit card application will be surely accepted. Lenders shall also consider several key factors before loan or credit card approval.

Let us have a look at some of the important factors on which your CIBIL score calculation depends:

Credit History

Credit score is calculated and generated based on your credit history. The financial institutions share consumer credit information with the credit bureaus twice every month.

The credit bureau then collates all the information into your credit report and calculates your credit score. The credit bureau holds and maintains your month-on-month record of the last 7 years of your payment history. The credit report also contains the status of each account, whether it has been closed, settled, or written off, along with the total paid or overdue amount.

It also contains information related to your personal and account information, details of inquiries, Days Past Due (DPD), submitted collateral/security, if any, etc. Therefore, if you have ever missed, delayed, or defaulted on your loan EMIs or credit card bills, it shall reflect negatively on your credit report.

Suggested Read: How Credit Card Impacts Your Credit Score

Credit Utilization Ratio (CUR)

The amount you spend on your credit card to the total available credit limit is considered as the Credit Utilisation Ratio. For calculating your credit utilization, Credit Information Companies (CICs) take the ratio of the credit amount utilized against your assigned credit limit.

Keeping a high credit utilization or maxing out your card frequently is seen negatively by credit bureaus. It depicts that the borrower is credit-dependent and may not be able to clear the debt in time which eventually marks a negative impression in the eyes of credit bureaus.

Credit Mix 

Your CIBIL score also depends on the composition of your loan portfolio which may consist of both secured and unsecured credit. Secured loans constitute auto loans, home loans, and business loans which are backed by collateral or security whereas, personal loans and credit cards are unsecured loans, as they are not backed by any collateral or security.

Any default and delayed payment made for any kind of loan will negatively impact your CIBIL score. However, the higher weight of an unsecured loan shows that you may have a lower credit score if you are unable to repay them in time. Secured loans have a very positive impact on your credit score if repaid on time, as they are backed by security and lenders’ risk at a minimum.

Recent Credit Enquiries

Any credit enquiry done by a lender on your behalf is considered a hard enquiry. Multiple enquiries in short span shows your hunger for credit. It is taken negatively by bureaus and may impact your credit score significantly. It will be displayed under the Enquiry section in your CIBIL report. A higher number of credit card or loan applications in a shorter duration shall depict your credit-hungry behaviour and may result in loan rejection.

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Factors that Affect CIBIL Score

CIBIL score is generally calculated based on several important factors by the credit bureau. They are:

Repayment History:  In case of late payments or defaulting your equated monthly installment (EMI), it will negatively impact your score. It is considered as one of the most important factors while calculating your CIBIL score.

Credit Utilization: High use of available credit regularly indicates that the applicant depends too much on credit and any unwanted incident can push him towards defaulting on the loan. A low credit utilization ratio below 30% is preferred by lenders.

Multiple Enquiries – Multiple enquiries present you as desperate and credit hungry. Many lenders refrain from approving credit applications of such applicants. Thus it is recommended to make a hard enquiry only when you are sure of taking a loan. However, checking your credit score regularly comes under soft enquiries and has no impact on your CIBIL score.

Length of Credit History: Older the age of your oldest active credit account, better is it considered for credit score. You should not close your oldest active credit account if it has been maintained in a disciplined manner.

Credit Mix: You should have an ideal mix of secured and unsecured credits to build a strong credit history. But this factor has a low weightage while calculating your score.

An Ideal CIBIL Score 

An ideal CIBIL Score for loans or credit is generally any score between 750 and 900. A good CIBIL score ensures a higher chance of your loan application getting approved.

No matter if you want to avail a personal loan, home loan, or car loan, any CIBIL score above 750 is considered favorable by most lenders. There are few lending institutions, such as NBFCs and Micro Finance Institutions that may offer loans even if you have a low credit score but at higher interest rates and lower loan amounts.

FAQs on CIBIL Score Calculation

Q. How do I calculate my CIBIL score?

Ans. There is no possibility and no authorization that you can calculate your own CIBIL score. CIBIL score is calculated and generated by the Credit Information Companies (CICs) or credit bureaus, based on the consumer credit information provided by the member lending institutions to them monthly.

Q. Is credit score calculated daily?

Ans. No, a credit score is not calculated daily but periodically. A credit score is calculated monthly (30-45 days) by the Credit Information Companies, based on the consumer credit information provided by the lending banks and NBFCs.

Q. Can I calculate my credit score myself?

Ans. No, you will not be able to calculate your credit score, as it is calculated based on your past credit behavior and payment history which is collected by the credit bureaus regularly. Each credit bureau uses a different statistical/mathematical algorithm to calculate credit scores and credit history.

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