Steps for Credit Score Calculation

Credit Score Calculation CIBIL score is 3 digit number that ranges between 300 and 900, the number indicates your creditworthiness.

Higher score better chances to get loan approvals and better deals for your loan and credit score.

750 is the minimum cut-off credit score for almost all banks and non-banking banks for approval of a loan.

Process of Credit Score Calculation or CIBIL score

Whenever a person applies for a loan in any category first of all bank/NBFC checks the CIBIL TransUnion Score person.

The full form of CIBIL is Credit Information Bureau India Limited.

The CIBIL score is a 3-digit number between 300 to 900. Higher the CIBIL score, the better the score. A credit score of more than 750 is considered a good score.

As your credit score increases your possibility of getting a loan also increases.

One more benefit of a good score is you can get personal loan at lower rate of interest.

Calculation of Credit record

A credit score of a person is calculated on basis of a record of credit. In your CIBIL score calculation, credit score depends 30%+ on credit record.

All banks and all financial institutions share all credit-related and personal information to credit bureaus.

After collecting all the information bureau links all these in your credit report and calculates the score of credit.

All information on your bills and EMIs of the last 3 years are used by bureau for preparing credit reports.

The credit report of a person contains the status of every account, whether it is the settlement, the amount forgiven, or the total amount outstanding in the account.

It also gives full detail of past statements made from your account.

So if you ever delay or default during payment of EMIs of any kind of loan or made a late payment by using your credit card it hurts badly your score of credit.

What is credit utilization?

The percentage of how much amount you use from the amount given as a loan by banks/NBFCs is your credit utilization percentage.

It has a 25% share in the calculation of the CIBIL score.

You need two things for credit utilization calculation, credit limit and how much you used over it. Divide outstanding loans with credit limit for credit utilization.

Credit mix and duration

CIBIL score of a person also depends on the composition of the portfolio of a loan, that how many secured and unsecured loan a person has?

Which carries 25% weightage during the calculation of the CIBIL score.

Secured loans include auto loans and home loans, while credit card and personal loans are part of unsecured loans because these have no security.

Any type of default or late payment of any loan affects your score badly.

Some other points which affect the CIBIL score are –
These are like the number of credit applications a person applied in the recent past, which weighs 20% in the CIBIL score calculation. All of this is shown in inquiries of the credit reports of a person.

CIBIL Score is madeup of? (How is the CIBIL score calculated ?)

Whether a person is repaying the amount of the loan on time or missing the payment determines the CIBIL score of that person.

If repayment of a loan is time to time then it makes up 30% of the score, 25 percent by secured or unsecured type of loan, 25 percent by exposure of credit, and 20 percent by utilization of amount of loan.

Following are some steps useful to calculate the score –

1. History of payment: Delays or defaults in paying EMIs affect adversely on your CIBIL score.

2. Credit mix: The combination of secured and unsecured loans is healthy for calculation of credit score.

3. Frequent Inquiries: Regular inquiries by the bank related to loan also affects your score badly because it indicates the chances of increased burden by the loan on you.

4. High Utilization of credit: As your credit utilization limit increases it indicates the increase in the loan amount over time, which is not good for the credit score of a person.

Note– the most important but underrated factor for low credit score is not maintaining the minimum bank balance in the bank account and if there is negative balance in your account it affects very adversely.

What range of CIBIL Score is Good?

A credit score of 900 is considered best for a person, but if the score remains around 740 then also a person can get a credit card loan easily with not many difficulties. Credit Score Calculation

The score between 550 to 700 is considered as average score.

In any condition, if the score is less than 550 then the person faces many difficulties and problems in getting a loan and credit card.

Can I get a loan if my credit score is bad? Credit Score Calculation

If any person have very low CIBIL score or credit score and also have emergency of money then he need to choose the path of a loan through NBFC .

NBFC can provide loan to all peoples whether good or bad credit score but the difference is the only interest rate. Person with a low score needs to pay more interest.

Banks can`t provide direct loan to a person with low credit score.

Steps for improvement of CIBIL Score?

Out of many steps in improving credit score some important ones are below-

1. Always pay outstanding bills on  late payments are not considered good for credit score calculation.
2. Prevent yourself from using so many credit cards- Minimize your expenses as much as you can.
3. Maintaining an ideal balance between secured loans such as home and car loans and unsecured loans like personal and credit cards is very necessary.
4. If a person has a joint account, must advise checking regularly because the carelessness of partner can cost you adversely in credit score.
5. Need to Review your credit history time to time or after a period of time there should be a regular checkup.

After how much time we need to check credit or CIBIL score?

Many times we seen such cases that because of the fault of the bank CIBIL score of a person get spoiled or affected.

So we advise to check your credit score after every 6 months.