CIBIL: If you want a loan then first understand CIBIL, how is it calculated and how does the score increase?

If you ever go to get a loan or credit card, the bank or financial institution first checks your CIBIL score. This three-digit number between 300 and 900 represents your credit reliability. Actually, a high score increases the chances of loan approval. Although CIBIL score depends not only on the number but also on your payment, credit history, and loan repayment, etc. But it can be improved by adopting the right financial habits, so that the benefit of credit facilities can be taken easily. So let's know how this score is made and which important factors affect it.

What is a CIBIL score?

CIBIL score is actually a number from your credit report. It shows whether you have repaid the loan and credit card on time or not. In simple words, it tells the bank whether you are reliable in repaying the money or not.

Always remember that the higher your CIBIL score, the more reliable it will be for the bank that you can repay the loan on time. Whereas having a low score can make loan approval difficult, and the interest rate can also be high.

So, do you understand how the CIBIL score is calculated?

CIBIL score is a three-digit number (300-900) based on your credit behavior and payment history. It includes credit utilization, length of credit history, credit mix, and inquiries. Banks and financial institutions send this data to the credit bureau, which derives the score from the algorithm.

The calculation of the CIBIL score depends not on a single factor but on many important things. Each factor has a different weightage, which decides the final score.

1. Payment history – 35%
Although this is the most important factor, in fact, CIBIL score pays the most attention to whether you are paying your loan installments (EMIs) and credit card bills on time or not.

Positive: Making timely and full payment.

Negative: Late payment, outstanding installments, or default.

2. Credit Utility – 30%
This represents how much of your total credit limit you are using.

Example: If your credit card limit is ₹1 lakh and you spend ₹30,000, the ratio will be 30%.

Positive: The ratio should always be less than 30%.

Negative: Using the entire limit regularly can lead to a drop in the score.

3. Length of Credit History – 15%
This represents how long you have been using credit.

Positive: A longer credit history indicates a better score.

Negative: Do not close old credit cards or loan accounts, even if they are not used.

4. Credit Mix and New Enquiries – 20%
Credit Mix: A balanced mix of home loans (secured) and credit cards (unsecured) improves the score.
New inquiry: When you apply for a new loan or credit card, it is called a hard inquiry.

Easy ways to increase CIBIL score

-Pay all EMIs and bills on time.

-Use credit sparingly.

-Do not close old credit accounts.

-Avoid applying for a new loan too soon.

-Keep a balanced mix of different types of loans and credit cards.

Let us tell you that a good CIBIL score (usually 750 or above) shows your financial responsibility and trustworthiness. Actually, it is not just a number, but a mirror of your financial health. You can maintain a strong CIBIL score by paying on time, using restrained credit and applying for loans wisely.

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