CIBIL Score

CIBIL is the abbreviated form of Credit Information Bureau (India) Limited, a company that maintains the credit information of all the persons who have even once enjoyed credit facility, from any bank or any financial organisation in India. This company stores total credit data of each person who has even once taken a loan from any bank or financial institution or has taken a credit card from any company.

They fetch complete data including the total number of loans taken by a person from banks, NBFC and other financial institutions, with details of amounts of each loan and number of credit cards taken along with the assigned credit limits. Above all these, they record their repayment behaviour. From such behaviour and history of a person, these credit companies design a credit score for each of that person. Thus, credit score denotes the credit worthiness of that person. Better the history better the score. Therefore higher credit score, the higher the credit worthiness of that person. Thus credit score means a numerical figure that reflects the credit rating of a person, as derived from the analysis of the credit data regarding that person as available on records, expressing the credit worthiness of that individual. This credit score as reflecting on the records of Credit information bureau (India) limited is termed as CIBIL score.

This practice of rating creditworthiness of a person is widely followed the world over. Different countries have their own different credit recording agencies. Those credit companies fetch credit data from different financial organisations. They provide a credit score for each person of their countries. In the USA this credit scoring is being used as a regular practice, even by landlords before giving accommodation on rent to a tenant.

The Credit Information Bureau (India) Limited (CIBIL) was the first company to be licensed by the Reserve Bank of India. It is functioning as a Credit Information Company since January 2001. Later on, in the year 2010, the Reserve Bank of India licensed three more companies to operate so as to break the monopoly of CIBIL. Although all the four credit information companies have developed their individual credit scores, the most popular among them is credit score as provided by CIBIL company. A CIBIL score is a 3 digit number that has been marked in the range of 300 – 900. Individuals who have no credit history, are given a score of -1. If the credit history of an individual is less than a period of six months, the score will be showing 0. CIBIL credit score takes time to build up and usually it takes between two to three years or even more of credit usage to obtain a satisfactory credit score. When you apply for a credit card or a loan, lenders like banks and non banking finance companies check your CIBIL score to see whether you have the capability to repay the credit. Generally a CIBIL score of greater than 750, is considered satisfactory.

The banks, finance companies and credit card companies, who are to sanction some loan to a person, so before giving such credit facility they want to assure themselves about the credit worthiness of their prospective borrowers so as to avoid any bad credit. That can only be derived from past credit behaviour of that person and this past repayment behaviour is provided by such companies.  These lending institutions employ this CIBIL score to evaluate the repaying behaviour of an individual before lending any money to such consumer so as to save their organisation from a bad debt. Such lenders through this score, rate the repayment capacity of a consumer. This rating is used to determine the amount of the loan that could be safely provided to that individual. Lenders as a practice assign rates of interest to be charged from a person, depending upon the bracket person’s score falls into. Lesser credit score means higher rate of interest, lower credit limit. An individual with a lower CIBIL score can even be refused the loan. This scoring is used at the stage of sanctioning of a loan or a credit card.

CIBIL scoring is not limited to banks. Many other organisations, such as insurance companies, mobile phone companies and government departments employ the same techniques. Digital finance companies such as online lenders also use different data sources to rate the creditworthiness of borrowers, before sanctioning such facilities to them.

How is the CIBIL Score calculated?

Your CIBIL score is the net result of following factors. Although CIBIL does not give any clue about their methods employed to construct scoring but they are generally believed to follow the following pattern:

Repayment Behaviour:

The most weightage in deciding your CIBIL score is given to your repayment behaviour. Defaulting on your EMIs or even making payments late, negatively impacts your score. (App 35% weightage)

High Credit Component:

A high credit component in your financial mix  indicates a rising debt burden in your financial structure and leaves a negative impact your score. ( App 20% weightage)

Length of History:

In case a person has a lengthy credit history, that helps a more accurate analysis of his behaviour so gives more confidence to your lender. Hence is given good weightage.  (Approx. 15% weightage)

New Loans:

Similarly, less of new loans in your recent past indicate your better financial health so increase your score. (App 10% weightage)

 Credit Composition:

A right mix of secured (Home loan and car loan) and unsecured loans (credit cards and personal loans) means less of unsecured loans shows your more creditworthiness. ( Approx 10% weightage)

Repeated Applications:

Your repeated applications for borrowing money from different banks or financial institutions, indicates your dire deficiency of funds, so signals a rise in your debt burden in future. Thus your frequent applications  for loans leaves a negative impact on your score. (10%)

Percentage of weightage in total CIBIL Score Chart:

Credit Score Weightage  Chart
CIBIL Score Weightage Percentage Chart

How can you achieve a higher CIBIL score?

Your CIBIL score is based on your above mentioned factors.. What you do today can help you build a stronger and healthier credit footprint. Here are a few quick tips to help you improve your score:

  • Always pay your dues on time. Late payments impart you a lower score.
  • Keep your credit balances low. Be prudent, avoid too much credit.
  • Avoid too much dependence upon the loans. Even if you have to take, try to delay as much as possible so as to reduce the frequency of loans.
  • Maintain a healthy credit mix of secured (like home loan and auto loan) and unsecured loans (like personal loans and credit cards) – too many unsecured loans may be viewed negatively.
  • Apply for new credit in moderation. This shows that you are not continuously seeking excessive credit.
  • Monitor your co-signed, guaranteed and joint accounts monthly. Remember that you are held equally liable for missed payments in co-signed, guaranteed or jointly held accounts, and your joint holder’s (or the guaranteed individual’s) negligence could affect your ability to access credit when you need it.
  • Review your credit history frequently throughout the year. Monitor your CIBIL Score and Report regularly to avoid unpleasant surprises (like a rejected loan application). Checking your report regularly will also alert you to possible inaccuracies, if any. In case you spot any discrepancy, you can log a dispute on the CIBIL website or request the lender to report the correction to CIBIL.
  • Even frequent applications for new loans, badly affects your CIBIL score.
  • Build a strong credit age.
  • Clear your bad accounts if you have any.
  • To improve your CIBIL score take short term loans and repay them responsibly without any delay or default. Such clean repayment behaviour would help you, raise your CIBIL score.

Today’s economy is a credit based economy. One is successful if one has easy access to credit. CIBIL score impacts your future access to credit means it can so much impact your life that it can make or break it. However, improving one’s CIBIL score is a marathon. You have to be inherently responsible and ethical. One great lesson is either you do not take a loan but in case you do, you should repay responsibility otherwise it is going to hurt you badly and you will have to bear the repercussions through your whole life. As you look to achieve your planned financial goals or in case of an emergency, you may need access to credit. Make sure you monitor your CIBIL score and credit profile regularly to ensure you are credit-ready. Start working towards improving your score today.

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