What is a CIBIL score? What are the factors that affect the CIBIL score?
The Credit Information Bureau India Ltd. known as CIBIL is the agency which provides credit reports and scores to the individuals. CIBIL is a 3-digit number which represents your credit history. It ranges between 300 - 900 and is calculated on the basis of the credit report of an individual and contains the credit history of the individual. Higher the score, higher will be the credit history. The CIBIL score comes into effect when you apply for a loan. CIBIL was incorporated in India in the year 2000 and is backed by major global credit bureaus and agencies.
CIBIL Score: How to calculate?
CIBIL score is calculated based on your credit history. However, there are certain other factors also that are considered along with the credit history of an individual to calculate the credit score. These factors are as follows in decreasing order of their consideration:
1- Credit History: An individual’s credit history holds the maximum weightage when it comes to calculating the credit score. How an individual has served his past debt obligation is taken into account. This holds a 30% weightage in the calculation of credit score.
2- Credit Exposure: An individual’s total amount of outstanding credit is also taken into consideration while calculating the credit score. This holds a 25% weightage in the calculation of credit score.
3- Credit mix and duration: The percentage of an individual's credit portfolio consists of secured and unsecured loans along with its duration. This factor holds a 25% weightage in the calculation of the credit score.
Other factors such as recent credit behaviour, credit utilization etc. contribute a 25% weightage of your credit score.
CIBIL Score: Benefits of a high score
There are a lot of benefits in having a high credit score. These are as follows:
1- To avail of a loan at low-interest rates: In several loans, a high credit score will help an individual in availing of the loan at lower interest rates.
2- Faster loan approvals: The credit institution checks the credit history of the individual applying for the loan. If an individual has a high credit score, the lender will consider him safe and the loan application will be accepted faster.
3- Faster disbursal of loans: Disbursal is the last stage in the loan process. After its approval, the amount is accessible for the usage. Faster the loan approval, faster is the disbursal process.
CIBIL Score: What factors affect it?
1- Defaults and Delayed payments: Any defaults or delay in the payments in recent years impacts an individual’s credit score negatively.
2- High utilization percentage: The ratio of an individual’s total outstanding loan to the credit limit is known as utilization percentage. For Example: If an individual’s utilization percentage goes down, then it is taken positively by the credit institutions. Whereas if an individual’s utilization percentage goes up, then the credit institutions take it negatively. Low utilization percentage means an individual has paid his debt on time and his outstanding loan and credit balance are going down. High utilization percentage means outstanding loan and credit balance is increasing. This means that an individual is burdened with the increase of repayment.
3- Higher the number of credit applications: Higher the number of credit applications an individual files, higher it affects his credit score negatively.
4- High percentage of unsecured loans: Secured loans such as home loans are far better than unsecured loans. An unsecured loan is easily available but it impacts the credit score of an individual negatively as it is available at higher rates compared to the secured loans.
Thus, building a high CIBIL score is a slow process and the individual must keep calm and should be consistent throughout the repayment process. Having a high CIBIL score has its own benefits as mentioned above.