What Constitutes a CIBIL score?

Keeping your CIBIL score above 750 is essential. Not only does it help you get credit or a loan easily from financial institutions, there are other departments in life as well where a good credit score is considered an important aspect of a person’s profile.

Why should CIBIL score be healthy?

For instance, nowadays, many corporates check the credit score of a prospective candidate before hiring him or her. Credit score also impacts your insurance premiums. If you have a healthy credit score, the premium that you will have to pay for an insurance will be far less than the amount you have to pay as insurance premium if your credit score is low. For taking a loan or credit card from a financial institution, the credit score being healthy is definitely one of the most deciding factors. The Reserve Bank of India (RBI) has asked banks to mandatorily check the credit score of a person before approving loans.

This is because a good credit score tells the creditworthiness of the applicant applying for the loan. It is also important for any person to regularly check his or her credit score. It is always considered a good practice to check your credit score from time to time and there are many financial institutions which are now providing it for free. So why not go ahead and check your credit score when it does not cost a single penny.

Factors that contribute to a CIBIL score.

#The repayment history of a person: The repayment history of a person is one of the most important factors that constitutes the CIBIL score. In total it accounts 35% of the total score which is a substantial figure. Therefore to keep your CIBIL score healthy, make all your credit payments on time without fail. Even if you default on the payment once, your CIBIL score will be affected negatively. It is also a good practice in truth to make the payments within the timeframe allotted.

#How much money do you owe to your lenders?: The amount of money you owe to the lenders depends on credit utilisation. Credit utilisation is nothing but the amount of credit you have used of the total credit limit available. Ideally, a person’s credit utilisation should not be more than 30% as it is considered risky. Hence keeping the credit utilisation ratio in check is fairly important.

#The amount of time for which a person has been availing credit: People might not think this to be an important enough factor but the amount of time for which a person has been availing credit is also an important factor which decides a person’s CIBIL score. This factor constitutes about 15% of the total CIBIL score. For this factor to contribute positively to your CIBIL score, the longer you have been availing credit, the better.

#The new credit amount that you have applied for: This factor contributes about 10% of the total CIBIL score. The more credit you apply for, the more number of enquiries will be made by credit card companies. Frequent enquiries will result in the score will being affected negatively. Therefore as the credit applicant you should ensure that the frequency of availing credit should be kept in check.

#The type of credit you apply for: The type of credit you apply for is also an important factor in determining your CIBIL score. Mixing the type of credit you take is essential. Taking only one type of credit like credit card or personal loan will negatively impact your CIBIL score. You should ensure that the type of credit you have taken is a good mix of the secured and unsecured form of credit. Some of the different forms of credit include mortgage, car loan, personal loan, credit cards etc.

Now you know what constitutes your credit score you can take steps to improve it. You can obtain your credit score and credit report once a year from the CIBIL website free of charge and identify the factors that are weighing your credit score down. It is a well known fact that having a credit score of more than 750 is required to obtain any sort of credit from a financial institution.

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Deepti here and I work as a freelancer, Blogger and specialise in compiling blog posts on the topics related to financial products like Credit Score, Credit Report, CIBIL Score, CIBIL Report, Equifax, Fuel Resource such as Petrol and Diesel and so on.

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