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How Is Your CIBIL Score Calculated?

Written by CreditSmart

Have Your CIBIL Score Calculated At Least Twice a Year

ist2_6308265-business-calculatingOnly about two decades back, banks, credit card providers and private lending and financial institutions had to rely on their own verification processes to calculate the credit worth of an individual. But now, with the emergence of CIBIL (Credit Information Bureau (India) Ltd.), the verification process has undergone a great change. Banks and other lending agencies today consider a CIBIL credit Score as a reliable source for knowing the credit rating of borrowers. Having your CIBIL score  calculated is a clear cut and safe indicator as to the eligibility of the applicant for a particular loan.

The CIBIL credit report is a document that details the credit and the overall financial discipline and regularity (say, repayments) that you have shown in the past six months or so. This data is gone through carefully by not only your banks, credit card agencies, insurance companies, but all other interested parties like telephone network service providers, etc. to decide on your eligibility for a particular credit that you want to avail.

Many loan applicants don’t even realize that the interest charged by the banks for a particular loan is more than the ditto same loan that has been Okayed by them for another applicant. This kind of a scenario emerges solely on the basis of the CIBIL credit scores. The higher the score, the speedier is the clearance with lower interests and vice-versa.

In other words, with CIBIL score data as well as credit reports, both the lending institutions as well as the recipients are benefitted immensely.

CIBIL uses specific set of algorithms when calculating credit scores of applicants.  There are three more RBI licensed credit rating bodies viz. Equifax, Experian and Highmark, however; CIBIL ranks high enough as it is not only the first such licensed entity but also the most trustworthy one.  Over the time it has proved to be a veritable treasure house of credit information on millions and millions of customers.

This is done besides the complex analysis of huge data that comes to them from the banks periodically.

Calculating your CIBIL Score 

At the outset, it is to be understood that the CIBIL Credit Score is calculated on the client’s credit conduct and record over a period of time. No other factor has any place in the calculations involved. Moreover, CIBIL uses only pure mathematics in doing so.

  • The first big step in getting your CIBIL score calculated is to segregate the collated credit related information of your credit history into comprehensible Score Parts. Basically, these score parts reflect the specific information contained in different parts of your CIBIL credit report. For instance, the percentage of your credit usage could form the first score part.  And the rest of the credit report similarly would gradually form the rest of the score parts.

These other parts essentially reveal your credit conduct in terms of the following situations –

  • The number of late payments occurred.
  • The number of enquiries you have made. This actually refers to the number of times you have applied or tried for a loan in a given period of time, say six months.
  • Account history and how old it is. Here, the adage “old is gold” fits in nicely
  • The number of open installment loans that you have taken on. Here, it is important to remember that as far as the banks are concerned, it is most certainly not a “more the merrier” kind of scenario. In fact, they would be as a norm pretty wary of those of us who almost as a habit keep applying for loans.
  • Specific percentages have been fixed to each of these scenarios by CIBIL.

Like this, once all the score parts have been figured out, CIBIL would put the figures into a single comprehensive equation and using a technical system arrive at the final CIBIL Credit Score.

Here, it is pertinent to remember that the lending financial institutions do rely very heavily on the CIBIL generated credit scores before arriving at investment decisions. But at the same time, it is not the sole criteria for taking these vital decisions.

These lenders also consider the very same CIBIL generated Credit Reports that in most cases is a monthly document. And also their own set of criteria starting with whether the loan applicant has a stable known source of income, credentials and personal identity, and if there are any collaterals available.

CIBIL has emerged as a trusting credit rating agency whose reports and scores are accepted by industry owners, lenders and financial institutions. CIBIL scores provide credible update about the repayment capacity of the loan seekers and their financial behavior.


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