Of the four credit information firms granted a license by the Reserve Bank of India, The Credit Information Bureau (India) Limited (CIBIL) is the most well-known. Three further businesses have been granted licenses by the RBI to operate as credit information firms. Experian, Equifax, and Highmark are the three. The CIBIL score, however, is the most widely used credit score in India. Let’s learn more about the CIBIL score.
32 million enterprises and 600 million people have credit files on CIBIL Limited. The American multinational corporation TransUnion includes CIBIL India. As a result, credit scores are known as the CIBIL Transunion score in India.
The CIBIL Score, which varies from 300 to 900, is a three-digit numerical summary of your credit history, rating, and report. Your credit rating improves when your score approaches 900.
How is CIBIL Score calculated?
The credit bureau often bases its calculation of the CIBIL Score on a number of significant variables. As follows:
- Repayment History: Your score will suffer if you have a history of making late payments or defaulting on your equated monthly installment (EMI). It is regarded as one of the most crucial variables for determining your CIBIL Score.
- Credit Usage: Frequent high credit usage suggests that the applicant relies too heavily on credit and that any unfavourable event might cause him to fail on the loan. Lenders desire a low credit usage percentage of under 30%.
- Multiple Inquiries: Multiple inquiries give the impression that you are credit-hungry and desperate. Lenders are cautious about granting these individuals credit applications. Thus, it is advised to undertake a serious inquiry only when you are certain that you will apply for a loan. Regularly monitoring your credit score, however, falls under the category of mild inquiries and does not affect it.
- A number of loans Availed and Applied: The Credit Bureau will keep track of how many loans you’ve applied for in the past and how many of them have really been authorized. If several of your loan applications were denied, it can hurt your credit.
- Credit Mix: To establish a solid credit history, you should have a balance of secured and unsecured credit. But when determining your score, this aspect is only given a small weight.
Ways to increase your CIBIL Score
- Repay Credit Card Dues on Time: Your credit score can be raised by paying off unpaid credit card bills. Getting into the habit of merely paying the minimum amount due when it appears on your credit card statement might help you avoid paying late fees. This minimal payment is equal to around 5% of the billing total for that period. But this results in a pile of debt since interest and taxes are then added to the bill in the next cycle. Paying your bills on time helps to raise your credit score over time and stops interest from accruing.
- Limit Credit Utilization: Utilizing less than 30% of your credit card limit will help you keep your credit score from being lowered. However, not using your credit card at all may have a negative impact on your credit rating. Paying down your credit card balance in full in advance is advised. It is advised to choose a greater credit limit, which can assist in quickly raising your credit score, if you are using more than 30% of the available credit on your card. Limiting the number of loans you apply for is also a good idea. Multiple loan applications might potentially negatively impact your credit score.
- New Credit Cards: When applying for credit cards, use caution. Although having a lot of credit cards and making expensive purchases might be detrimental, credit cards are useful when asking for loans. Checking your credit eligibility before applying for a credit card is a smart idea, as is going to banks where your loan application has a better chance of being granted. This is so that your credit score won’t be negatively impacted by using your credit card excessively or by applying for many credit cards from different institutions.
- Keep a Check on your Credit Report: In 2012, the Federal Trade Commission conducted research and discovered that about 20% of consumers’ credit reports included errors. Customers who reported an unresolved problem still thought there was an error in the report, according to follow-up research done in 2015. Check your credit report sometimes for discrepancies and mistakes. Borrowers are entitled to one free credit report from credit bureaus each year by law.
- Opt for Different Types of Credit: When used carefully, credit may be beneficial since a person who has never had any credit will often have a lower CIBIL score, which can make it more challenging for them to get loans. To build your credit history, it is therefore essential to diversify your portfolio of loans by combining personal and secured loans, long-term loans, and short-term loans. When you decide to apply for a loan, this step can assist increase your chances of receiving a larger loan and a cheaper interest rate.