A lot of people check CIBIL score periodically to ensure that they are in good credit standing. In this article, we will evaluate the key factors that determine CIBIL score calculation. By understanding these factors, one can have a better understanding of how they can improve their credit score.

Key factors that determine CIBIL Score Calculation

  • Credit History (30%)
  • Utilization of Credit (25%)
  • Duration, Type And Defaults (25%)
  • Credit Enquiry (20%)

Past Credit Performance (30%)

The most important factor in determining one’s CIBIL score is an individual’s past credit performance is accounting for 30% weightage. The record of credit borrowed by an individual and the history of behaviour in repayment of credit is what is considered in this section. If one has made payments on time and in full balance, they would score well in this section.

Credit Utilization (25%)

Utilization of Credit accounts for 25% weightage in CIBIL score calculation. Credit utilization is the amount of credit borrowed as a percentage of total credit limit. For example, if one has a credit limit of Rs. 1,00,000 and they have Rs. 60,000 of limit in usage, their credit utilization will be at 60%. A lower credit utilization score has a lesser perceived risk is from a bank’s perspective.

If an individual does increase their credit utilization periodically, then their credit score is negatively impacted. It’s favorable for an individual to have a decreasing credit utilization.

Credit Duration, Types And Defaults (25%)

The type and duration of credit account for 25% weightage in CIBIL score calculation.

Credit Duration is the time period from the approval of one’s first credit disbursement to date. A longer credit history is looked at more favorably by CIBIL because it gives them more data for analysis of risk.

The type of loan (secured or unsecured) availed also contributes towards a higher score. Secured loans (car loans and home loans) are secured by way of collateral. Unsecured loans (credit cards and personal loans) are not backed by way of collateral. Unsecured loans negatively impact a score when compared to secured loans even if the payments for both the loans are made on time.

Defaulting on any loan payment (principal or interest) will negatively impact an individual’s credit score. Accounts in collection, bankruptcies, liens and foreclosures take 7-10 years to rectify in one’s CIBIL score.

Credit Enquiry (20%)

The number of times an individual has made a credit enquiry accounts for 20% weightage in CIBIL score calculation. A credit report contains an enquiry section that displays the number of times a credit enquiry was made in each time period. More credit enquiries/applications in short time spans may make the individual be deemed as being credit hungry. Similarly, multiple credit rejections will increase perceived risk. Hence, it is not advisable to apply for several credit lines during a short time span.

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