Today, consumers look to credit cards and loans to help them achieve their dreams and financial goals. The CIBIL Score is one of the important factors in getting this access to credit. But what is the CIBIL Score? And what are the factors that influence it?

Here are a few answers to these questions:

 

What is a CIBIL Score?

A CIBIL Score is a consumer's credit score. Simply put, this is a 3-digit numeric summary of a consumer's credit history and a reflection of the person's credit profile. This is based on past credit behavior, such as borrowing and repayment habits as shared by banks and lenders with CIBIL on a regular basis (the details of which are featured in the consumer's CIBIL Report).

The Score is based on details found in the 'Accounts' and 'Enquiries' sections of the CIBIL Report, including (but not restricted to) loan accounts or credit cards, payment statuses, outstanding amounts and days past the due date. Ranging from 300 to 900, the closer a CIBIL Score is to 900, the higher are the chances of the consumer's credit card or loan application getting approved.

A person's past behavior is taken as an indicator of his/her future actions, and, in line with that, the CIBIL Score showcases a consumer's credit-worthiness. For example, when a person applies for a credit card or loan, one of the important factors that lenders check is the credit profile of the person as depicted by the CIBIL Score.

TransUnion CIBIL (formerly Credit Information Bureau (India) Limited) is India's leading credit information company with one of the largest collections of consumer information. It was established in 2000.

 

What is a CIBIL Report?

A CIBIL Report is a consolidated credit report that includes the consumer's CIBIL Score and credit summary, personal information, contact information, employment information, and loan account information. It is important to note that lenders consider both the CIBIL Score and Report to assess a person's loan eligibility.

 

What are the factors that impact a CIBIL Score?

The CIBIL Score is generated by a scoring algorithm, which takes into account a large number of data points and macro-level credit trends. It is based on 36 months of credit history. Primarily, there are four key factors that impact a consumer's CIBIL Score - payment history, credit mix of secured or unsecured loans, enquiries and credit utilization.   However, the latest CIBIL Score algorithm also includes the depth of credit (i.e., the duration of your existing credit history from when your oldest credit account was opened), long term trend of outstanding balances, transaction history on credit cards, ratio of actual repayment amount to total amount due and new accounts opened/accounts closed.

 

How can you work towards a positive credit profile?

Your CIBIL Score is built on your credit history and past payments but will impact your future access to credit. What you do today can help you build a stronger and healthier credit profile. Here's how:

 

*Always pay your dues on time as lenders view late payments negatively.

*Keep your balances low, do not use too much credit, and control your utilization. And apply for new credit in moderation.

*Maintain a healthy credit mix of secured (like home loan and auto loan) and unsecured loans (like personal loan and credit cards) - too many unsecured loans may be viewed negatively.

*Monitor your co-signed, guaranteed and joint accounts monthly. Remember that you are held equally liable for missed payments in co-signed, guaranteed or jointly held accounts, and your joint holder's (or the guaranteed individual's) negligence could affect your ability to access credit when you need it.

*Review your credit history frequently throughout the year. Monitor your CIBIL Score and Report regularly to avoid unpleasant surprises (like a rejected loan application). Checking your report regularly will also alert you to possible inaccuracies, if any. In case you spot any discrepancy, you can log a dispute on the CIBIL website or request the lender to report the correction to CIBIL.