How CIBIL score is calculated ?
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The CIBIL score (Credit Information Bureau (India) Limited score) is a three-digit number that represents an individual's creditworthiness. It is calculated based on the data in the individual's credit report. Here's a detailed breakdown of how the CIBIL score is calculated: 1. Components of CIBIL SRead more
The CIBIL score (Credit Information Bureau (India) Limited score) is a three-digit number that represents an individual’s creditworthiness. It is calculated based on the data in the individual’s credit report. Here’s a detailed breakdown of how the CIBIL score is calculated:
1. Components of CIBIL Score
The CIBIL score is typically influenced by the following factors:
A. Payment History (35%)
Timely repayment of loans and credit card bills positively impacts the score.
Delayed payments, defaults, or settlements reduce the score.
B. Credit Utilization (30%)
The proportion of credit used compared to the total credit limit.
High utilization indicates dependency on credit, which negatively affects the score.
C. Credit Mix and Duration (25%)
The diversity of credit accounts (secured loans like home/car loans and unsecured loans like credit cards/personal loans) improves the score.
Longer credit history with consistent repayment behavior increases the score.
D. Number of Hard Inquiries (10%)
Frequent applications for loans or credit cards result in hard inquiries by lenders, which can lower the score.
Multiple inquiries in a short period signal credit hunger, affecting the score negatively.
2. Key Metrics in Credit Report
Account Age: Older credit accounts demonstrate long-term financial reliability.
Debt-to-Income Ratio: Lower ratios indicate better financial health.
Negative Records: Loan defaults, write-offs, or bankruptcies have a significant adverse impact.
3. Weightage of Factors
Payment history holds the highest weightage, reflecting your reliability in repaying debts.
A balanced mix of secured and unsecured credit and a longer credit history contribute significantly to a high score.
4. Score Range
300–549: Poor (Credit applications are usually denied).
550–649: Average (Higher chances of loan rejection).
650–749: Good (Eligible for loans, but at higher interest rates).
750–900: Excellent (Easily approved for loans with favorable terms).
How to Monitor Your CIBIL Score?
Obtain a free annual CIBIL report from the CIBIL website or authorized financial institutions.
Regularly monitor for discrepancies or errors in your credit report and report them for rectification.
By maintaining a disciplined financial approach—timely payments, low credit utilization, and a good credit mix—you can ensure a healthy CIBIL score.
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