Know how of your CIBIL score: How is it calculated?

These days we can hardly find a credit company which gives loans or credit cards to its customers without checking the credit score of the individual. The best source to get the credit information of an individual is the CIBIL score. The credit worthiness score given to an individual is called as CIBIL TransUnion score, from here on we call it as CIBIL score.

CIBIL uses some advanced financial analytics to calculate the CIBIL score. The score ranges from 300 to 900 and closer it is to 900 better the credit worthiness of the individual. However each bank has its own criteria and methodology to calculate the credit score. Even different banks have different cut-offs on credit scores to give loans depending on the risk appetite. Any score more than 750 is generally considered to be a good score.

As it was said various companies have various methodologies to calculate the credit score. But, the major factors that are considered for credit score calculation will be more or less the same, may be with slight variation in weightages assigned to these factors. The factors can be:

• Past Performance
• Credit type and Duration of the credit
• Credit exposure

Individuals’ past behavior in repaying various debt obligations will be a major criteria. Type of loan availed whether a secured one or not shows the repaying nature of the individual. Duration for which he has been under monitoring of CIBIL also does matter as trust increases with time. Amount of exposure towards credit indicates risk associated with that person if the loan is given. Say if the person is less exposed to credit, then it implies that he has less debt obligations and he can repay easily.

Some other factors like credit utilization, trade attributes and defaulting will also influence credit rating. Credit utilization shows the consumers behavioral pattern in using the total credit limit. Trade attributes measures the longevity of the credit history of the individual.  Defaulting shows the number of accounts in case of which the individual did not pay back.

CIBIL score not only influences qualification of an individual for a loan but also might influence the company in deciding the norms and conditions for the loan agreement. Hence repaying the EMIs on time and maintaining a healthy credit record will certainly should help improve the CIBIL score.

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