The Reserve Bank of India (RBI) has mandated that starting January 1, 2025, credit scores must be updated every 15 days. T his significant change aims to provide a more accurate representation of the borrowers’ credit behaviours. To make the most of this frequent updation, it is essential to understand how a CIBIL/credit score is calculated and the factors that affect it.

Let’s dive into the details of how a CIBIL score is calculated, who decides the score, and the ideal CIBIL score range.

How Is Your CIBIL Score Calculated?

Your CIBIL score is derived from the data shared by various lending firms regarding your credit history. Understanding how the CIBIL score is calculated involves analysing past financial behaviours, particularly your repayment history over the past months or years.

Here’s a general scoring model depicting how the CIBIL score is calculated:

• Repayment History (30%): This shows whether you have successfully repaid your previous loans and credit card dues on time.
• Credit Balance and Utilisation (30%): This measures the amount of credit you have used relative to your total available credit limit.
• Length of Credit History(15%): A longer credit history generally has a positive impact on your score, especially if you have a track record of timely repayments.
• New Credit (15%): Frequent applications for new credit can lead to multiple hard inquiries, which may lower your score.
• Credit Mix (10%): Maintaining a healthy mix of different types of credit—secured loans, unsecured loans, and credit cards—can enhance your credit profile.

Please note that this is a general scoring model, and the exact factors and their weightage can differ among credit bureaus.

Factors That Go Into the CIBIL Score Calculation

Understanding the following factors is crucial to learning how your CIBIL score is calculated:

• Existing Debts: Large amounts of outstanding debts, missed payments, and frequent penalties can negatively affect your CIBIL score. Managing debt responsibly by paying on time is key to maintaining a good score.
• Credit Utilisation Ratio: Keeping your credit utilisation ratio at or below 30% is generally advised to maintain a healthy score. High utilisation can signal credit dependency and may reduce your score.
• Errors in CIBIL Reports: Inaccuracies in your CIBIL report can unnecessarily lower your score. Regularly review your report and address any discrepancies to ensure an accurate score.
• Paying Only Minimum Dues: Relying on minimum payments each month can lead to increasing debt due to compounding interest on the remaining balance. Paying the full amount when possible reflects good financial management and positively impacts your CIBIL score.

What Should Be the Ideal CIBIL Score?

Your CIBIL score ranges between 300 and 900, with higher scores indicating better financial management. A score of 750 and above is generally considered excellent by most reputable lending institutions and can help you secure loans with favourable terms.
However, the ideal score can vary depending on factors like individual lender policies and the type of financial product you’re applying for. For instance, lenders may require a higher score for unsecured loans compared to secured ones.

Who Decides Your Credit Score?

In India, TransUnion CIBIL (Credit Information Bureau (India) Limited) is a prominent credit information company responsible for calculating CIBIL scores. It provides a 3-digit score based on data collected from various financial institutions that report information about your loans and credit usage.
While the term “CIBIL score” specifically refers to the score generated by TransUnion CIBIL, credit score is a broader term and can be provided by any credit bureau. Apart from CIBIL, there are 3 major major credit bureaus in India—Experian, Equifax, and CRIF High Mark.

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Conclusion

Knowing how your CIBIL score is calculated and monitoring it regularly can help you make informed financial decisions to improve your score. A strong credit score can increase the overall strength of your loan application and help you secure lower interest rates.

SMFG Grihashakti offers home loans of up to INR 1 crore* for eligible applicants with a minimum credit score of 700. With an easy online application process, attractive interest rates starting at 10%* per annum, and flexible repayment tenure of up to 30 years, we’re here to help you realise your dream of homeownership. Apply online today or contact us for more information.