Unravelling the CIBIL Score Calculation Process

Every financial institution, be it banks or NBFCs (non-banking financial companies) prefer to sanction loans to individuals who have a high CIBIL score. According to CIBIL, loan approval is quicker for applicants who maintain a high CIBIL score, i.e. a score above 750. 

The CIBIL score is a three-digit score derived from details of a borrower’s CIR (Credit Information Report). A person’s loan payment behaviour and financial habits determine his/her CIBIL score besides 

Loan applicants need to know the CIBIL score calculation process. Here is a detailed overview of the entire process.

CIBIL score calculation 

Many people may be wondering what the purpose of the CIBIL score is. A CIBIL score is a 3-digit score issued by TransUnion CIBIL, formerly known as Credit Information Bureau India Limited. This authorised body collects people’s credit information from lenders and generates a credit report based on which a CIBIL score is derived. A proprietary algorithm is used to generate this report.

This score indicates an individual’s creditworthiness based on repayment history and previous borrowings. A CIBIL score can range from 300 to 900. The higher the score better is the chance of getting a loan approved with favourable terms and conditions.

How is a CIBIL score calculated? 

TransUnion CIBIL takes into consideration various factors for CIBIL score calculation. Discussed below are the important factors: 

  • Credit history

CIBIL has always laid a lot of emphasis on an individual’s past loan and credit card repayment history. The credit bureau collects information from various financial institutions and lenders including details of EMI compliance, credit-related information and bill payments.

This information will get listed in one’s credit report under the headings of ‘settled’, ‘written off’ and ‘left outstanding’. Outstanding dues, and delayed or missed EMI/credit card payments will be listed as well. These will have a negative impact on an individual’s CIBIL score.

  • Credit utilisation 

Financial experts define credit utilisation as the credit amount that a person has used against their total credit limit. It is advisable to restrict one’s credit utilisation to 30% of the total limit. When a borrower utilises only a small portion of his/her credit limit, it has a positive impact on the individual’s CIBIL score. 

So, if a person has one or more credit cards, they should not spend their cards’ entire credit limit and pay the minimum dues on time. Credit card users should pay off their bills in full, mainly because, if they pay only the minimum required amount, they have to pay very high interest on the remaining amount. This may have a negative impact on one’s CIBIL score.

  • Number of hard inquiries

The number of times a person has submitted a credit application plays a determining role in the CIBIL score calculation process. When people submit credit applications, financial institutions check and evaluate the CIBIL report to get an idea about their credit behaviour. This is widely known as a hard inquiry. 

If multiple hard inquiries are made for a person, lenders consider them to carry a high risk of falling into a debt burden. That is why it creates a negative impact on one’s CIBIL score.

  • Credit mix and duration 

The credit information company also takes into consideration the type of credit which individuals mostly depend on, for their CIBIL score calculation. If a person has availed too any unsecured credit options such as credit cards and personal loans, his/her credit report may indicate that the individual is a risky borrower. 

On the contrary, if someone has availed secured loan options such as home loans and loans against property, and has made repayments in time, it has a positive effect on their CIBIL score. 

Another essential factor for CIBIL score calculation is the duration of one’s credit history. This means that the older the date of one’s first credit account, the better his/her CIBIL score. A long term trend of repaying credit will result in an excellent credit score.

Ways of maintaining a high CIBIL score 

Listed below are the various ways to improve and maintain a good CIBIL score: 

  • Considering that lenders view late or missed payments negatively, borrowers should always pay their dues on time. 
  • People must not use too much credit. They need to control their credit utilisation. To keep a high credit score, one must keep their balances low and stay financially disciplined enough. Getting a higher credit limit can help in this regard.
  • It is advisable to exercise moderation while applying for new credit. This indicates that the applicant is not credit-hungry and has a good impact on one’s CIBIL score. 
  • A loan guarantor is equally liable for missed or delayed payments as the first applicant. Any negligence will hurt the person’s CIBIL score. Therefore, people must keep track of their co-signed, guaranteed and joint accounts every month.
  • People should strive for a healthy mix of secured and unsecured loans. Too many unsecured loans can have a negative impact on one’s CIBIL score.
  • It is a good idea to undertake regular monitoring and reviewing of one’s CIBIL report and score. It will let people detect inaccuracies quickly and bring them to the attention of CIBIL.

Why maintain a good CIBIL score?

Potential home loan applicants can enjoy various benefits if they maintain a high CIBIL score. Apart from gaining quick approval and instant disbursal, people can also enjoy the benefit of low-interest rates and flexible repayment tenure. 

The chances of getting a higher loan limit are quite high. In certain cases, people can even avail add-on credit card benefits. Moreover, applicants can negotiate with financial institutions for better terms and conditions. 

Often, financial institutions provide pre-approved offers on their credit facilities such as home loans and loans against property. These offers hold immense benefits because they hasten the loan application process.

Applicants who maintain a high CIBIL score have easier access to pre-approved offers compared to people with low scores. All that people need to do to check for pre-approved offers on a lender’s official portal and type in their contact details.

To sum up, every person needs to know about the CIBIL score calculation process as it plays a vital role in loan approvals. This 3-digit score issued by TransUnion CIBIL indicates how worthy a person is for availing credit. The credit bureau accumulates data from various financial institutions that the applicant has interacted with and generates a credit report.

People must check their credit reports regularly because there might be discrepancies and inaccuracies. It would be quite beneficial if they bring any such inaccuracy to the attention of the concerned authorities as soon as possible. This is because a credit report plays an important role in determining a person’s access to financing.

Alex John

Alex John is a senior writer with expertise in He has been writing professionally for the last 3 years and is passionate about sharing his knowledge with others. In addition to his work as a writer, Alex John is also a WordPress developer. He believes in hard work and strives to make a positive impact in the world through his writing.

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