Cibil, short for Credit Information Bureau India Limited, is a company that records credit-related activities of individuals and organisations. Banks, non-banking financial companies, and other financial institutions submit customers' credit information to the company. Based on the information, Cibil assigns credit scores to customers and issues credit information reports.
The Reserve Bank of India has mandated all banks to check customers’ credit scores for loan or credit card applications. A credit score is one factor determining the eligibility of a loan amount. The credit score of an individual can range between 300 and 900. A score of more than 700 is considered “good” and anything below is not preferred by banks.
Cibil uses a proprietary algorithm for calculating a credit score. The most important component of this calculation is how you have treated credit such as loans and credit card bills in the past.
How Cibil score is calculated
Payment history: Your payment history holds significant weight in your Cibil score. Lenders want to see you pay your bills on time. Late payments or missed payment on credit cards or loans affects your score.
Credit utilisation ratio: It represents the proportion of your available credit that you're currently using. Using less credit shows responsible management and can boost your score. Keep it below 30 per cent for a good score.
Length of credit history: The longer you've had credit accounts open, the better it is. A longer history gives lenders more information to judge your financial habits. A well-established history is a positive for your score.
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How to improve Cibil score
Check your credit report
Before applying for a loan, check your credit report available across platforms including Cibil, Equifax, Experian and CRIF High Mark.
Dispute Inaccuracies
Read your Cibil report carefully. If you see something wrong, make sure you dispute errors immediately on www.cibil.com. It is compulsory for any financial institution to act on disputes within 30 days. Once an institution fixes an error, your credit score could see a boost.
Pay your dues on time
You should set reminders for payments and be disciplined with repayments. Your settlement of outstanding debt can have a considerable impact on your credit score. Delays in repaying loan instalments (EMIs) result in penalty and lower your credit score.
Maintain a healthy credit mix
Having a mix of secured loans (like home or car loans) and unsecured loans (like personal loans or credit cards) with both long and short repayment terms shows responsible credit management. This can improve your credit score. However, be cautious with unsecured loans, as having too many might raise red flags for lenders.
Watch out for Joint Applicants
Being on a loan or credit card with someone else influences your credit history. If your partner misses payments then you too will lose out on your Cibil or credit score as it reflects in your report too. To avoid this trouble, make sure you only apply for joint credit with someone you trust completely, and be very careful about keeping up with payments.