The CIBIL Score, commonly referred to as the Credit Score, is a three-digit numerical summary of a borrower’s credit history. In other words, your CIBIL score refers to how successfully you have managed your finances, such as a home loan, personal loan, or credit card in the past. For example, it assesses whether you have defaulted in the past or not whether have you paid your dues on time, etc. Your credit score is maintained and calculated by CIBIL, or CIBIL full form Credit Information Bureau (India) Limited. However, as a borrower, you know how to do CIBIL score check online free but do you know the sections your credit report contains or most importantly, how your CIBIL score is computed?
Four Important Sections of a CIBIL Report
Following are the critical sections that CIBIL or CIBIL full form Credit Information Bureau (India) Limited takes into account while calculating the score.
Credit Summary: This section contains information on all past and present credit accounts held by the subject, including their balances.
Account history: This section contains information about each credit account, such as the account type the individual holds, their account number, the date they opened the account, loan amount, last three payment records, including the most recent payment date, and current balance.
Public records: This section includes any instances of financial blunders the individual has made, such as skipped or delayed EMI payments.
Credit inquiries: Any business, organization, or lending institution that has enquired about the credit report will be listed here.
How is your credit score calculated by CIBIL?
A credit agency, such as CIBIL, or CIBIL full form Credit Information Bureau (India) Limited analyses several essential elements to determine credit worthiness of an individual and provide a credit score in the end:
Credit repayment history or payment pattern: Whether the fact you are repaying your loan timely or not contributes 35% to your overall score hence it is always suggested to pay your dues on time to significantly boost your score whenever you do CIBIL score check online free. Payment history is one of the most important aspects that might affect your CIBIL score, either positively or negatively. Your credit score will improve if you pay your outstanding payments from credit cards and loan EMIs on time. And late or missed payments will lower your credit score. As a result, such late payment activity should be avoided if you want to keep your score high. According to experts, a 30-day delinquency can drop your CIBIL score by 100 points.
Credit balance and utilization: Credit exposure, commonly known as the credit utilisation ratio, is the second most important element influencing your score or CIBIL full form Credit Information Bureau (India) Limited score. This factor accounts for 30% of the score and is defined by your credit utilization ratio. The credit utilization ratio refers to how much credit you use in relation to your available credit limit. According to experts, you should use up to 30% of your overall credit card limit. A high credit utilization ratio indicates that you are credit hungry and have financial difficulties. Due to significant credit consumption on your credit cards, lenders may believe you are at high risk of becoming a defaulter, resulting in application rejection.
Duration of credit the individual availed: Contributes 15% to the score and is calculated by analyzing your timely repayment behaviour and repayment duration. A long credit history indicates that you have credit management experience. The amount of years since you created your first credit account is referred to as your credit history. As a result, it is recommended that you begin developing your credit history as soon as possible and do CIBIL score check online free because it will come in handy when you want to buy a house or a car in the future, both of which require larger loan amounts.
New credit inquiries: Contributes 15% and is determined by additional new loan or credit card inquiries. Hard inquiries are another aspect that CIBIL or CIBIL full form Credit Information Bureau (India) Limited does in calculating your CIBIL score. Lenders obtain your CIBIL report from the credit bureau when you ask for credit, such as a loan or a credit card. Such inquiry is constituted under hard inquiry, and having numerous of them will lower your score. Applying for many lines of credit at the same time is not a good idea as this will increase your hard inquiry number.
Credit mix: Accounts for 10% of the score and takes into account your credit type while determining your CIBIL score. The more diverse one’s credit mix, the higher one’s credit score will be when one CIBIL score check online free. It is critical to keep a good balance of secured (e.g., home/auto loan) and unsecured (e.g., credit card) loans. When you have both secured and unsecured credit on your credit report, it indicates that you are well-versed in dealing with both types of credit.
Ideal CIBIL Score One Should Have
|What does it indicate
|Indicates an exemplary credit history which makes it easy for people to secure high-value loans from financial institutions. Higher credit score assures banks that borrower have been consistent with their payments and can be granted a loan.
|Though it also means a great track record, financial institutions may conduct some credit analysis before granting you a loan.
|This score that the individual has a few irregularities with their previous loan payments. Some banks might take a little risk to disburse the loan. With this score, the borrower might be charged a little higher interest rate.
|Such a credit score means a borrower have a lot of defaults in the past which makes the individual a risky one to be disbursed. With this score, the borrower might be either charged a higher credit score or their loan application will be rejected by the bank.
So we are saying,
It should be mentioned that your CIBIL score is one of the elements that lenders check when approving your application. As a result, you should take the essential steps to work for a high credit score and do CIBIL score check online free. Currently, some lenders offer preferential interest rates to customers with a good CIBIL score. With a high score, you can negotiate better credit card deals and get reasonable interest rates on loans.