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Business News/ Brand Stories / How is CIBIL score calculated? Here are 4 important factors you should know
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How is CIBIL score calculated? Here are 4 important factors you should know

Your CIBIL score is calculated based on many factors that range from repayment history to credit enquiries. To know more about the factors that are considered for your CIBIL score, read on

By filling a simple form with basic information, you can know your CIBIL score in seconds and even access your report.Premium
By filling a simple form with basic information, you can know your CIBIL score in seconds and even access your report.

When you regularly check your CIBIL score, you understand your creditworthiness and take necessary actions to have or maintain a high score. However, these actions are effective only if you understand how the credit bureaus calculate your score. Knowing this will help you identify the actions that can hurt your credit score and those that can boost your score. There are many credit rating agencies that calculate your credit score based on different factors. Each of these factors accounts for a certain percentage of your credit score and ignoring anyone can negatively affect your score.

Among the various credit scores is your CIBIL score, calculated by TransUnion CIBIL. Your CIBIL score is calculated based on many factors that range from repayment history to credit enquiries. To know more about the factors that are considered for your CIBIL score, read on.

Past credit behaviour

Your past credit behaviour refers to your repayment history. It impacts your score heavily and is extremely important to your profile. As such, you must do your best to make timely and full payments to ensure a healthy track record. Another reason why lenders assess your track record is that it offers insight into your repayment patterns. A steady and default-free profile makes you a low-risk borrower and increases your score.  

With credit score checking, you can also get access to information about credit behaviour and how it impacts your score. Your credit report will include EMIs, credit card payments, delayed payments, and defaults. You will also get information about the status of your credit accounts. Ensure that all information listed here is accurate as any errors with account status can impact your score. 

Credit mix

Your credit mix is the ratio of secured and unsecured credit that you have from different lenders. This is another important factor that influences your CIBIL score. Too much-unsecured credit can be a red flag and could lower your score. Your pattern of borrowing secured or unsecured credit gives lenders an idea about your ability to handle different types of debt. A good balance between this shows that you can handle both types of credit and that you are a responsible and experienced borrower. So, when you check your CIBIL score, pay attention to the type of credit you have and make sure that you have a good balance.

Credit utilisation 

This is the amount of credit you use from your assigned limit. Like credit mix, this is another factor that influences your score heavily. It is generally recommended that you do not utilise more than 30% of your assigned credit limit. If you have a monthly credit limit of Rs. 1,00,000 across your credit cards, you should try using less than Rs. 30,000 monthly. 

With a high utilisation ratio, your score will dip until your ratio adjusts to an acceptable level. Meanwhile, lenders may be hesitant to approve new credit for you. This is because this type of behaviour displays credit-hungry behaviour. It shows poor financial management and will affect your credit profile. On the other, low or ideal utilisation is favourable for both parties. This is why, before using your credit, check your outstanding bill payments and available credit to keep your utilisation within the acceptable ratio.

Credit enquiries

Whenever you apply for new credit, lenders will incite a hard inquiry into your credit profile. These are logged and reflected on your profile and will cause a temporary dip in your score. Naturally, having a few inquiries may not be bad for your CIBIL score, but too many inquiries in a short period will lower your CIBIL score noticeably. Ideally, you should wait a few months before you apply for new credit.  

With this information on CIBIL score calculation, make decisions that impact your score positively. You can make the most of the free CIBIL score-checking services available on various lenders’ websites to know exactly where you stand. While you do not need to know how to calculate the CIBIL score, you can check the CIBIL score for free on Bajaj Finserv. By filling a simple form with basic information, you can know your CIBIL score in seconds and even access your report. So, use the service today and work toward building a healthy credit profile. 

Disclaimer: This article is a paid publication and does not have journalistic/editorial involvement of Hindustan Times. Hindustan Times does not endorse/subscribe to the content(s) of the article/advertisement and/or view(s) expressed herein. Hindustan Times shall not in any manner, be responsible and/or liable in any manner whatsoever for all that is stated in the article and/or also with regard to the view(s), opinion(s), announcement(s), declaration(s), affirmation(s) etc., stated/featured in the same.

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Published: 13 Jul 2022, 11:12 AM IST
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