Understanding CIBIL Scores and How to Improve Yours

What is CIBIL score?

A CIBIL Score is a three-digit number that summarizes your credit history. It is calculated based on the credit information in your CIBIL Report, also known as the Credit Information Report (CIR). The CIR provides a detailed record of an individual’s credit payment history across various loan types and credit institutions over time. However, it does not include information about your savings, investments, or fixed deposits.

Learn about CIBIL scores, common myths, their importance, how they are calculated, how to read your CIBIL report, and tips to improve your credit score effectively.

Common myths about CIBIL score

1. Checking Your Credit Report Affects Your Score

Reviewing your credit report does not impact your credit score.
Multiple lender inquiries within a short time can marginally lower your score.
Regularly checking your report helps identify improvement areas and enhance your score.

2. Income Influences Your Credit Score

Credit scores are calculated based on credit reports, not income.
High income doesn’t guarantee a good score; responsible credit behavior is key.

3. Low CIBIL Score Means No Loan Approval

Loans aren’t solely approved based on credit scores.
Factors like income, co-applicant’s credit score, and reputation also matter.
Borrowers with low scores can still get loans, often at higher interest rates.
Peer-to-peer (P2P) platforms provide alternative lending options.

4. Debit Cards Improve Your Credit Score

Debit card usage doesn’t contribute to credit history or scores.
To build credit, use a credit card or take a loan.
Transitioning from “No Activity” to a credit score can take months.

5. Closing Old Accounts Improves Your Credit Score

Closing old accounts can shorten your credit history, potentially lowering your score.
A longer credit history gives lenders a better view of your financial behavior.
Close accounts cautiously, especially if managing multiple cards responsibly is a concern.

6. Marital Status Impacts Your Credit Score

Credit scores are individual and unaffected by marital status.
Joint loan applications consider both applicants’ credit scores.

Financial behavior, not marital status, determines credit scores.

7. Anyone Can Access Your CIBIL Score

Only you or authorized financial institutions can access your credit score.
Lenders need your permission to check your score during the loan application process.

8. Applying for New Credit Harms Your Score

Applying for new credit doesn’t harm your score unless you apply to multiple lenders simultaneously.
Multiple inquiries suggest financial stress and may lower your score.
Choose reputable lenders to avoid unnecessary score impact.

9. High CIBIL Score Guarantees Lower Interest Rates

Lenders consider multiple factors like income, age, and credit history in addition to CIBIL scores.
A high score doesn’t always guarantee approval or lower rates if other factors are unsatisfactory.

10. Clearing Debt Erases It from Your Credit Report

Settling debts doesn’t remove the transaction from your credit report.
Negative details can remain on your report for up to 7 years.
Bankruptcy-related information can stay for up to 10 years.

Why Does the CIBIL score matter?

The CIBIL score plays a critical role in the loan application process. When someone approaches a bank or a financial institution for a loan, the lender first checks the applicant’s CIBIL score and report. If the CIBIL score is low, the bank may not even consider the application further. If the CIBIL score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy.

The CIBIL score works as a first impression for the lender, the higher the score, the better are your chances of the loan being reviewed and approved. The decision to lend is solely dependent on the bank and CIBIL does not in any manner decide if the loan/credit card should be sanctioned or not.

Typically, a score of 700 is considered good.

How CIBIL score is calculated?

A CIBIL score is based on a person’s credit history, which includes their payment history for loans and credit cards over time.

How to read my CIBIL report?

A CIBIL Report has detailed information on the credit you have availed, such as home loan, automobile loan, credit card, personal loan, overdraft facilities. You can download the Understand Your CIR document here for your ready reference. Below are the key sections of the CIBIL Report

CIBIL Score

Your CIBIL score, calculated based on your credit behaviour as reflected in the ‘Accounts’ and ‘Enquiries’ section of your CIR, ranges between 300-900. A score above 700 is generally considered good.

Personal information

Contains your name, date of birth, gender and identification numbers such as PAN, passport number, voter’s number

Contact Information

Address and telephone numbers are provided in this section, up to 4 addresses are present

Employment Information

Monthly or annual income details as reported by the Members (Banks and Financial institutions).

Account information

This section contains the details of your credit facilities including name of lenders, type of credit facilities (home, auto, personal, overdraft, etc.), account numbers, ownership details, date opened, date of last payment, loan amount, current balance and a month-on-month record (of up to 3 years) of your payments.

Enquiry Information

Every time you apply for a loan or credit card, the respective Bank or financial institution accesses your CIR. The system makes a note of this in your credit history and the same is referred as “Enquiries”.

How to improve your CIBIL score

1. Pay your dues on time
2. Avoid taking too much debt at one time
3. Maintain healthy credit mix, its always have right combination of secured loans (such as home loan, automobile loan) and unsecured loans (such as personal loans, credit cards)
4. Apply for new credit within your imit.
5. Review your credit history frequently and work accordingly

Tip is to have a lot more credit and keep your utilisation low to leave a positive impact on your CIBIL score.

Disclaimer: All values, calculations and our content are based on our own assumptions /thoughts /information’s available on internet. Please consult with your financial advisor before making any investment decisions based on this article. Vijay Broadcast is not responsible for any Profits / Losses. Thank you for reading, and we look forward to sharing another interesting article with you soon!

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Understanding CIBIL Scores and How to Improve Yours