Building a Healthy CIBIL Score

What is CIBIL Score?

The CIBIL Score represents the credit profile of a person and is one of the most significant factors deciding whether or not an individual will have access to much-needed credit. Your credit score is actually your CIBIL score. It is expressed as a three-digit numeric description of the credit history of a customer.

How is CIBIL Score calculated?

The CIBIL Score is focused on the past credit conduct of a person, such as the borrowing and repayment history that is routinely shared with CIBIL by banks and lenders. The CIBIL Score is based on 36 months of a consumer’s credit history, taking into account many macro-level credit patterns. Importantly, the CIBIL Score of a customer is affected by four main factors. This includes payment history, secured or unsecured loan credit mix, enquiries and use of credit.

With technological developments and emerging algorithms, CIBIL Score is also calculated on the basis of the long-term market pattern of outstanding balances, credit card purchase history, the ratio of the current redemption amount to the total amount due and the opening/closing of new accounts.

What is a good CIBIL Score?

The CIBIL score is between 300 and 900. The minimum CIBIL score required to accept a personal loan varies between 650 and 750 for most lenders. A higher CIBIL score increases the probability of receiving the credit needed. A lower score hurts the chances of customers taking advantage of a loan.

Why do lenders check consumers’ CIBIL Score before lending?

CIBIL Score determines your creditworthiness through which a lender examines various factors such as:

To verify the credit record and history of the customer (borrower).
For the determination of the willingness of customers to repay the loan .
To determine whether a prospective borrower meets the eligibility requirements for the lender’s loan.
Calculating the appropriate/applicable loan amount and rate of interest for a borrower.

How can I work towards building a positive credit profile?

To build a good credit profile, you should simply follow these steps:

Paying your bills on time. Payment delays are negatively regarded by lenders.

Seek a balanced credit mix consisting of secured loans (home loans and car loans etc) and unsecured loans (such as personal loans and credit cards) since too many unsecured loans are regarded negatively by lenders.

Be vigilant when you are guaranteeing a family member, friend, etc., or anyone you jointly hold bank accounts with. Since you are equally responsible for missing payments, negligence in payments by your joint holder (or the guaranteed individual) may affect your ability to access credit when you most need it.