The CIBIL Score is calculated using your credit history, specifically the information contained in your CIBIL Report (Credit Information Report or CIR). This report reflects your borrowing and repayment behavior across various loans and credit facilities over time.
Here's a breakdown of the factors considered:
1. Payment History:
- This is arguably the most significant factor. Your track record of paying credit card bills and loan EMIs on time heavily influences your CIBIL score.
- Consistent on-time payments demonstrate responsible credit behavior and contribute positively to your score.
- Delayed payments, defaults, and write-offs negatively impact your score.
2. Credit Utilization:
- This refers to the amount of credit you're using compared to your total available credit.
- High credit utilization (using a large portion of your available credit) can indicate that you're overextended and may struggle to repay debts. This negatively affects your score.
- Low credit utilization (using a small portion of your available credit) demonstrates responsible credit management and positively influences your score. Experts typically recommend keeping your credit utilization below 30%.
3. Types of Credit and Credit Mix:
- Having a healthy mix of secured (e.g., home loan, auto loan) and unsecured credit (e.g., credit cards, personal loans) can positively impact your score.
- This demonstrates your ability to manage different types of credit responsibly.
- However, too many unsecured loans can be viewed negatively.
4. Credit Inquiries:
- Each time you apply for credit, lenders request your credit report, resulting in a credit inquiry.
- Multiple credit inquiries in a short period can suggest that you're actively seeking credit, potentially signaling financial distress. This can negatively affect your score.
- Spreading out your credit applications can help minimize the impact of credit inquiries.
5. Other Factors:
- Length of Credit History: A longer credit history provides more data for CIBIL to assess your creditworthiness.
- Errors in your CIBIL Report: It's important to regularly check your CIBIL report for any inaccuracies and report them to CIBIL for correction.
In summary, CIBIL analyzes these factors from your credit report to generate a three-digit score ranging from 300 to 900. A higher score indicates a better creditworthiness and increases your chances of loan approval at favorable interest rates. Maintaining a good credit history by making timely payments, keeping credit utilization low, and managing your credit mix effectively are crucial for improving and maintaining a healthy CIBIL score.
