CIBIL score is a numerically calculated number based on various factors that make an application for loans worthy. The CIBIL stands for Credit Information Bureau India Limited and it’s a three-digit number that is calculated with the help of a mathematical algorithm to assess the credibility of a creditor. The banks and all other financial institutions usually go through the process of checking the CIBIL score of a prospective creditor before approving a loan. This score is used when checking the eligibility of a creditor while handing out credit cards, and also in deciding the credit limits for an individual. Hence a lender always takes the help of the credit score as a reference before forging a financial relationship with the creditor.
The CIBIL score is based on a number of factors like repayment history, credit utilization, and length of credit card history, credit inquiries. Therefore, one can achieve a great credit score by paying attention to keeping a good record in these factors. A CIBIL score ranges from 300 to 900 and getting a 750 is considered good for applying for loans. A higher score is directly linked to higher chances of not only getting a loan but also higher credit limits.
The banks and other financial institutions send credit-related information to the credit bureaus. All this information is used to prepare the credit report and calculate the credit score accordingly. The credit bureaus usually keep a record of every month’s loan re-payment and any other payment details in the last 3 years of the creditor.
Following are the factors for calculation of the CIBIL Score:-
Credit utilization: This holds the highest weightage of 30% in the calculation of the credit score. This needs efforts and discipline on the part of the creditor who has to keep in check the utilization of the credit amount that has been approved by the financial institution.
Credit History: It is the entire record of all the loans and their payment history which is taken into account while calculating the CIBIL Score. It is given 30% weightage in the credit score calculation. The creditor has to be careful not to be a defaulter at regular payments as this holds a certain importance in the CIBIL Score.
Credit Variety: The credit portfolio also holds importance during the calculation of the CIBIL Score. The amount of secured and unsecured loans is also considered during the process.
Credit applications: This holds for a 20% weightage in the process of calculation of the credit score. If a creditor applies for a loan, it is usually recorded. It is displayed in the Enquiry Report. A number of applications made to financial institutions do not help in higher scores. A creditor should be mindful of this.
Utility bills: The payment of utility bills like electricity, gas, and internet also has importance in the calculation of the CIBIL Score. This shows the pattern of a creditor’s payment behavior which helps to assess the score.
Your CIBIL Report and the CIBIL Score not only evaluate not just whether you qualify for a loan, but it may also have an impact on the terms & conditions under which you can make use of the loan. So, check your CIBIL credit score from time to time to make sure your score is up to the standard. Timely payment of EMI loans is quite important for maintaining a good credit rating and a healthy credit score.