Factors on which CIBIL Score is Calculated

Your CIBIL score is a significant consideration for lenders when analyzing loan applications. As a result, it’s critical to understand how the score is determined. While a proprietary algorithm determines your CIBIL score, the essential components of the score composition are based on an individual’s loan payment record.

Your Credit score calculation is computed using various criteria ranging from repayment history to credit inquiries.

Past Credit Behavior:

Your payback history is referred to as your previous credit behavior. It significantly influences your score and is crucial to your profile. As a result, you must do your best to make timely payments and check your CIBIL score to maintain a good track record. Another reason lenders look at your track record is to gain insight into your repayment practices. A consistent and default-free profile qualifies you as a low-risk borrower and raises your credit score.

Credit Mix:

Your credit mix is the percentage of secured and unsecured credit you have from various lenders. This is another significant component influencing your CIBIL score. Too much-unsecured credit might raise a red flag and reduce your credit score. Your borrowing habit for secured or unsecured credit offers lenders a sense of your capacity to manage various forms of debt.

Credit Utilization:

This is the amount of credit you have used from your credit limit. Like a credit mix, this is a major element in your credit score. It is typically advised that you should not exceed 30% of your given credit limit. An individual maintaining a credit of Rs. 1,000,000 on all of their credit cards should make an effort to spend less than Rs. 30,000 each month.

Credit Inquiries:

Lenders will thoroughly investigate your credit history if you apply for new credit. These are recorded and reflected on your profile, resulting in a temporary drop in your score. Naturally, having a few questions may not be detrimental to your CIBIL score, but having too many queries in a short period can significantly impair your CIBIL score. It would help if you ideally waited a few months before applying for new credit.

Additional Read: Top 5 Tips to Maintain High CIBIL Score


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