A Brief Insight Into Credit Score Calculation – Things You Should Know

A Brief Insight Into Credit Score Calculation – Things You Should Know


Around 79% of all loans in India are approved for consumers with a CIBIL of 750 or above. CIBIL or the Credit Information Bureau (India) Limited is an organisation, which tracks the creditworthiness of each Indian, through his/her credit history and other factors.

All lenders today thus check a loan applicant’s CIBIL or credit rating in general, when processing a loan application. Therefore, to improve one’s likelihood of availing loans, he/she must be aware of CIBIL score calculation and the factor that weigh in to determine one’s score.

What is CIBIL score?

CIBIL or credit rating refers to a 3-digit numeric figure, representing the creditworthiness of an individual based on prior handling of loans or advances and credit discipline adopted. An individual with a clean record of timely repayment of loans or credit card debt often carries an impressive CIBIL score and vice versa.

CIBIL scores range between 300 and 900, whereby a score of 750 or above is generally considered sufficient to avail various kinds of loans in India. While you can get a personal loan if you have a bad CIBIL score, it is best to take measures for score improvement when planning to avail finance. It is primarily because the terms for such a loan are often not in the borrower’s favour.

Factors affecting CIBIL score calculation

The following four major aspects determine whether an individual carries an impressive credit rating or otherwise –

  • Payment history – It refers to your track record of servicing loans in general, and is indicative of your repayment habits. Your payment history thus depends on whether you have closed dues in time or if you have defaulted on such payments in the past.
  • Multiple enquiries – Successive and substantial number of loan enquiries can hamper your credit rating since it indicates that you are likely to avail fresh debt soon.
  • Credit mix – If you want to improve your CIBIL score, attaining the perfect balance between secured and unsecured credit mix in your loan portfolio is critical. If you avail too many loans of one particular kind, your credit rating may suffer as a result due to one type of advance outweighing the other, thus hampering your future financial standing.
  • Credit utilization ratio – If you consume too much credit in a short span, it indicates a credit hungry nature and also lowers your repayment capacity. The credit utilisation ratio thus indicates the total percentage of credit already consumed out of the total credit available to you, with an ideal ratio standing between 30 and 50%. A high ratio, too, can thus negatively affect your CIBIL score calculation.

How to check CIBIL score for free?

As per the RBI guidelines, CIBIL is obligated to offer one free credit report check to every individual. Moreover, one can check this score online, by following the steps mentioned below –

  • Step 1: Visit CIBIL’s official website.
  • Step 2: Fill in the requisite form with necessary details like name, contact number, email address, and others.
  • Step 3: Enter your PAN number.
  • Step 4: Answer all questions regarding past loans, credit cards, and repayment correctly.

Based on this information, CIBIL provides your credit score instantly. If you want to generate more than one credit report in a year, you can go for subsequent reports against a stipulated charge.

Ways to improve your credit score organically

One can adopt various ways and do several things to improve his/her personal credit score. Understanding the CIBIL score calculation process should give you an insight into how you can approach credit rating improvement –

  • Never avail substantial credit, which you may find challenging to repay. Late EMIs or credit card bill payment can hurt your credit score and vice versa.
  • If you have availed personal loans in the past, try to avail secured credit options in the future. Such a credit mix is viewed as a positive trait in potential lenders.
  • Keep your credit utilisation ratio to a minimum. For instance, if you have availed a credit card with a limit of Rs.1 lakh, ensure you use only up to Rs.40,000 – Rs.50,000 for the existing billing cycle.
  • Check your credit report every year and intimate any errors that may crop up in your report for rectification. Although not frequent, CIBIL score calculation may be a result of errors or omissions in one’s credit records.

If your credit scores are high enough and are an existing customer, you can also avail pre-approved offers from lenders like Bajaj Finserv. These offers are available on a range of financial products, including personal loans, business loans, credit cards, and more. You can check your pre-approved offer by providing your full name and contact details.

As a potential borrower, CIBIL score is one of the integral determining factors you should keep in mind and identify if your CIBIL score is getting you down when availing finances. The scores in this scale can dictate the interest rates and amount of funds you can avail as a loan. Additionally, it can also determine whether you are eligible for unsecured and secured credit.