Get your FREE CIBIL Score?
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Free CIBIL Score
Checking your Free CIBIL Report is an important financial habit to keep track of good financial health. A good CIBIL score is important in getting easy and quick access to credit for everybody. Banks use your Credit score to judge your financial wellbeing when you apply for loans and credit cards. So when you have a good Credit score, banks are more willing to give the best interest rates, rewards, and terms and conditions on your credit cards and online loans.
What is CIBIL Score?
CIBIL Transunion is one of the four credit bureaus in India which is mandated and approved by the RBI to provide credit reports of borrowers. RBI mandates all banks to provide credit data of all borrowers on a periodic basis. In turn, banks use the credit bureau data to make decisions on credit-worthiness of borrowers. The 4 RBI approved Credit Bureaus are CIBIL Transunion, Experian, Equifax, and CRIF Highmark. The Credit Score that is issued by CIBIL Transunion is commonly referred to as CIBIL Score. You can check your FREE CIBIL Score once a year to make sure you on track for good financial health.
CIBIL Score Calculation
CIBIL Score Calculation has a method to the madness. Below is the official word on how credit score is calculated. The four factors that impact one’s credit score by weight are:
- Past Credit Performance (30%): The most important factor in the calculation of one’s credit score is their past credit performance. This includes how borrowers performed on on-time payments, potential defaults, etc.
- Duration & Category of Past Credit (25%): The type/category of loan people take and the duration of these loans is also important. The type of loan refers to whether a loan might be an auto loan or home loan or credit card. Duration refers to the active time period of the loan.
- Credit Usage (25%): This refers to how exposed a borrower might be to credit in terms of total debt, etc.
- Credit Utilization (20%): Other important factors include how much credit one is using as opposed to total available credit (credit utilization), and how often hard checks are being performed on one’s credit.
What is a good CIBIL Score?
Here are the different ranges of CIBIL score:
- Excellent –> 850-900
- Good Score –> 750-850
- Decent Score –> 700-750
- Mediocre Score –> 650-700
- Bad CIBIL Score –> Under 650
Improve CIBIL Score
Some of the tips to improve your credit score include:
- Make all your credit card and loan payments on time. Pay in advance if you are afraid of forgetting.
- Never miss a payment.
- Never default on your credit account. If you are unable to make a payment after repeatedly missing a payment, call and discuss your issue with your bank to potentially get some flexibility from the bank. Defaults make irreparable to one’s credit history.
- Avoid HARD credit checks. When you apply for a new loan or credit card, banks perform a HARD credit check. Avoid it by being careful and selective about what you apply for.
- Reduce Credit Utilization Rate. Credit Utilization Rate is the percentage of credit a borrower uses in his/her total available credit.
- If you do not have a credit score, get a Secured Credit Card to improve your credit score. Banks issue Secured Credit Cards to borrowers in lieu of a security (eg: Fixed Deposit).
- Spread your credit across multiple products. Credit bureaus like seeing diversity in the types of loans from borrowers.
- Do not Guarantee a loan unless you are willing to risk your own Credit Score.