CIBIL Score:-

A CIBIL score is a three-digit number between 300-900, 300 being the lowest, that
represents an individual's credit worthiness. A higher CIBIL score suggests good
credit history and responsible repayment behavior.

Credit Exposure: 25% Payment History: 30%

How CIBIL Score are calculated:-

CIBIL score is calculated by various credit bureaus using their own proprietary algorithm, but the
main elements of score composition revolve around loan and credit card repayment behavior of an
individual. CIBIL score is a number between 300 and 900. Higher the score, better the credit track
record of the borrower. The closer you are to 900, the more likely it is to get a loan approved from a
bank. Experience says that a Credit Score of 750 and above can be considered as a good enough
score by banks at the time of doing a credit appraisal of your loan application.

A CIBIL Blog mentions that four factors pertaining related to credit behavior of a borrower are
considered while calculating the CIBIL score. These factors are :

 Credit History: Your past credit repayment track record or your credit history is
of the highest importance in the score calculation. Your past credit track record has a
weightage of around 30% in the formula for calculating your CIBIL score. All banks and
NBFCs share the payment track record of each individual borrower with CIBIL on a
regular basis. The credit bureau compiles data and uses the same for score calculation.
This information captured is a month-on-month record of the latest 3 years of your
payments towards your bills and EMIs capturing timely payments, delayed payments,
settled and written off amount.
Tip - Always make timely payments on all loan dues. Never leave any loan unsettled
even if there has been a default or delay in payments.
 Credit Utilization: Your current outstanding loan obligations divided by your
available limit is used to calculate the level of your credit utilization. A high and rising
credit utilization ratio may have an adverse impact on your score as it signifies your
rising loan burden and monthly obligations. The credit utilization ratio has a weightage
of 25% in your CIBIL score calculation.
Tip - Restrict your credit card over-dues to up to 50% of your credit card limit. Avoid
taking multiple loans over a short period of time.
 Credit Mix: Your loan portfolio composition in terms of proportion of secured and
unsecured loans also has a bearing on your score. Higher proportion of unsecured
loans in your total loans portfolio has a negative bearing on your credit score. Credit
Mix is estimated to have weightage of 25% in your score calculation.
Tip - Restrict the proportion of unsecured loans in total loans portfolio to less than
30%. Avoid holding more than 2-3 credit cards.
 Other Factors: In addition to the above three factors, the number of credit
applications you have submitted in the last few months also have a bearing on your
score. If your CIBIL report shows multiple loan applications that have been rejected in
the recent past, it gets reflected in a lower credit score. Banks are also averse to lend
to borrowers, who have been rejected by other banks. These other factors are
estimated to have a weightage of up to 20% in your CIBIL Score calculation. Hence, it
is extremely important to apply to select banks after a thorough research and
comparison of loan schemes of all banks in India.
Tip - Do not apply for multiple loans over a short period of time. If you do not have
other loans, spend actively on your credit card to build credit history.
 Good CIBIL Rating In India:-
Loan Type Good CIBIL Score

Home Loan Above 650

Personal Loan Above 700

Loan against Property Above 650

Business Loan Above 700

Car Loan Above 700

Gold Loan Not required

Why maintaining a CIBIL Score is Important:-

A CIBIL score is like a fingerprint. It clearly gives a picture of a person's financial health and how
responsibly he uses his money. Most people are not even aware of the credit scoring process until
they apply for a loan! And then it dawns on to the small steps that could have been taken in everyday
life to have a good CIBIL rating. But that might be too late as the person’s loan application would have
already been rejected and he would be left on to a loan path to rebuilding or improving his CIBIL score.

Some of the ways in which CIBIL report can affect finance:-

 CIBIL rating influences the ability to avail loan:
With a low CIBIL rating, your loan application may be rejected. The lender might consider you high-
risk and thus not willing to lend. The banks and big finance companies are choosier as they offer a
low rate of interest on the loan. The financial implications of not being able to get a loan at
reasonable rates to meet your home buying, personal or business requirements are well understood.

 Good CIBIL Score can help you save your money:

Smaller NBFCs and finance companies have more relaxed loan eligibility parameters. However, they
charge a higher rate of interest to compensate for the higher risk they take on certain customer
profiles. So, even if you get loan, you might have to pay a higher rate of interest for the same amount
borrowed.

All banks, NBFCs and finance companies will pull out your credit report to get a clear picture of your
credit history. The CIBIL score is an indication of your credit worthiness and thus reliability and will
also determine the rate of interest you will end up paying on your loan

 Good CIBIL report gets you better deals:

High CIBIL rating would entail you from availing benefits like:

 Higher end credit cards with better reward points

 Cash back offers
 Discounts like surcharge waiver for fuel
 Better flight reward points
 Airport lounge entry card
 Some freebies, etc.
These benefits would not be extended to someone with a low CIBIL score. People will higher credit
score get regular offers from banks and Credit card companies to upgrade to high value credit
cards with multiple rewards and benefits.
 Bearing these points in mind can surely help you to achieve the required credit goal. A good CIBIL
score not only improves your chance to get easy approval of your credit card or loan, it also helps
you get lowest interest rates, higher tenure or best loan eligibility!

So, a good step taken towards a healthy CIBIL report is beneficial in more ways than one.

How to improve CIBIL Score:-

Your CIBIL Score is based on your credit behavior and past credit repayment track record. Banks
submit your loan details to CIBIL on a regular basis, which over-time gets documented in your credit
report and is used to calculate your score. Some of the important factors that are used in your CIBIL
Score calculation along with tips to maintain a good score has been included in the table below:

 Keep your CIBIL Report free of errors:

There are cases when you have been a good borrower and have repaid your loans on time. However,
due to system errors, your score is lower than what it should be.

For example, Rishi had paid off his loan in full and had closed down the loan account as well. But
due to some administrative error, the account was still showing active in his credit report. He
approached the credit bureau and informed them of the wrong reporting. By making corrections, he
was able to improve his score.

Tip : Do CIBIL check on a regular basis, especially after closing a loan or a card.

 Do not miss or delay your payment:

The repayment schedule of an individual is an important factor for calculating CIBIL score. The track
record of the payment made towards credit card and loan makes up to one-third of the score. Thus,
any kind of late payment will adversely affect your CIBIL rating.

Tip : If you start paying off your bills on time, you can immediately see a positive impact on your
score.

 Do not revolve your credit card balance:

Being a balance payer of credit card has a great impact on your score. It means, whenever a credit
card bill is due, make the full payment instead of the minimum amount. This definitely improves
your credibility to the lender.

Tip : Make small purchases on your credit card and pay them on time.

 Limit the utilisation of your credit limit:

The easiest way to improve your CIBIL score is to avoid utilisation of your full credit card limit. The
trick is to limit the utilisation of your monthly credit card limit to 50% of the total.

For example, if you have a credit limit of Rs. 1 lakh a month then you should ideally not exceed the
monthly spent beyond Rs. 50,000.

Utilisation of your credit limit more than 50% generally signifies that you might have financial issues.
This signifies that you may not be in a position to keep aside some amount to pay off your debt on
time. Hence this leads to a drop in the score.

Tip : Get a credit card of a higher limit and then spend less than 30% of the limit to improve your
score.

 Do not go for credit card or loan settlement:

Credit card or loan settlement happens when you are unable to pay your EMI on time. The borrower
then offers to close the entire debt for a mutually agreeable amount. This settlement amount is
usually much lower than the total amount that needs to be repaid. However, once your credit card is
"settled" for a lesser amount, you would get a very bad spot on your CIBIL report.
 Tip : Never opt for settlement of card or loan. Instead, make delayed payments if necessary, but
close it completely so as to avoid this bad spot!

 Avoiding multiple credit card or loan application in a short period of

time:
If you make multiple enquiries or applications for loan in a short period of time, then it is not a
positive signal. Lenders may get edgy about your credit profile, feel that you are cash crunched and
may be hesitant to lend to you if other banks have rejected your loan application recently.

Tip : Space out your application of loans so that the lender is not scared off!

 Opt for secured loans or credit cards:

Even if you have a low CIBIL score, you could easily avail a secured loan like a Gold Loan. Or avail a
secured credit card which is issued against a collateral. In this case, your CIBIL score would not be
required to avail the loan as it is against a collateral. However, disciplined usage and timely
repayment of a gold loan or a secured credit card would surely help your score to increase.

Tip : Ensure you repay your secured loan or gold loan on time to improve your score.

Usually, it takes about 6 to 12 months to improve your score, if you take the right steps. So, all that is
needed from someone with a low score is commitment, patience and self-discipline.

Factors that impact CIBIL Score:-

Parameters Weightage Factors that impact your
(Approx) score

Past repayment 30% Timely loan payments, loan

track-record defaults, over-dues and loan
settled

Portfolio mix 25% % share of secured and

unsecured loans

Credit utilisation 25% Credit limit utilization, number of

loans

Other factors 20% Number of loans, number of

applications

Factors that do not impact CIBIL Score:-

Many times, we get worried that a delay in any of our obligatory payments such as tax or utility bill
payments may get reported as a CIBIL default and impact our score adversely. However, many of
these events are not reported to Credit Bureaus and hence, do not impact your CIBIL Score. Few
factors that do not impact your Score are:

 Payment track record of utility bill payments including mobile and electricity
 Prepayment of loans or transferring your loan to another bank
 Payment track record of rent payments
 Cheque Bounces in your bank account
 Your Spouse’s CIBIL Score
 Regularly perform CIBIL score check.
 Any delay or defaults in tax payments
 Delay or default in paying to your suppliers or trade partners
While you may breathe easy that the above events are not going to affect your credit score, one
word of caution : many of these factors may still be evaluated by the bank while taking a decision to
lend. So, indirectly they may impact your eligibility to get a loan. Our advice is to follow a healthy and
disciplined practice towards paying all your dues in time as:
 Many banks and NBFCs check your bank statements for cheque bounce
information or your utility bills payment track-record to evaluate your credit-
worthiness. This is especially true in the case of unsecured business loans or SME
loans.
 Similarly the banks may also check your spouse’s CIBIL score to establish the
credit worthiness and calculate the eligibility of the household as a unit or in cases
where you have filed a joint a loan application or are business partners.
 In recent past, there have been increasing consensus on including utility bill
payments records as a part of CIBIL score calculations. This is a popular practice in
many developed countries and there is a likelihood of it getting implemented in India
as well.

Why do I have a poor CIBIL Score?

It is extremely important to consider any early warning signs and take corrective actions to improve
your score. Typically, poor CIBIL rating reflects the past credit repayment track record of the
borrower. But sometimes, it may be a result of reporting errors by banks.

Below is a list of parameters that can adversely impact your CIBIL score:

Low CIBIL score due to wrong reporting by banks

Though CIBIL Score is ought to reflect the credit behavior of a borrower, sometimes wrong reporting
by banks may translate into a low CIBIL Score. Some of the common errors by banks that can
impact your score are:

 Wrong credit info provided by banks

 Record not updated even after the customer has paid
 Lenders classifying a/c as “settled with loss” while actually the dues were
disputed
 Lenders showing amount as “overdue” even when the demand is contested by
the customer
Low score due to past behavior of the borrower

Credit behavior and repayment track record of the borrower are some of the factors that result in a
low CIBIL score. Some of the common credit behavior factors that result in a low CIBIL score check
of borrowers are:

 Write offs reported, particularly in last 2-3 years on secured loans, unsecured
loans and credit cards
 Outstanding credit card dues
 Delay in payment of EMI’s on home loan, loan against property, personal loan,
consumer loan, gold loan or any other loan
 Too many loans already availed
 High credit availed on credit cards
 Too many loan applications made in the recent past
 Higher proportion of unsecured loans in total loans outstanding

Understanding the CIBIL Score:-

Credit Parameter How it impacts your score

Past Payment Track  Repayment track record of all your past

Record debts
 Consistent track record of meeting
payments on time drives a higher score
  Delayed payments lead to a lower score
 More recent the delays, more the
negative impact

Past Defaults,  Write-offs recorded by lenders on past

Settlements, Write- debts pull down your score
offs  Recent write-offs are viewed more
negatively than the older ones
 Multiple write offs lead to a significantly
lower score
 Defaults or delays in repaying secured
loans (e.g. home loans) are viewed more
negatively than those on unsecured ones (e.g.
credit cards)

Secured Loans Vs.  Greater reliance on unsecured loans

Credit Cards and (credit cards, personal loans) as opposed to
Unsecured Loans secured loans is viewed negatively
 Fewer of such accounts with regular
payment history support a higher score
 High balances (as proportion of total
limit) on credit cards drive down score

Loans as Proportion of  High loan balances (as proportion of

Income income) tend to pull down score
 Low balances indicate healthy credit
usage habit and lead to a higher score

Loan Enquiries  Too many loan enquiries made for

availing loans in the recent past reflect a
“credit hungry” behavior and affect the score
negatively