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What Affects Your CIBIL Score?

Posted on
Aug 30, 2021
What Affects Your CIBIL Score?

Introduction: What is a CIBIL score?

The CIBIL score measures your creditworthiness. It is like any other unit of measure that indicates your repayment ability based on predefined parameters. The idea is to quantify your repayment strength. The CIBIL score limit is between 300 and 900, and the higher it is, the better. As long as your score is above 750, you have a good chance of getting your loan application approved. The Credit Information Bureau (India) Ltd., an organisation backed by the Reserve Bank of India (RBI), generates the CIBIL score. CIBIL Ltd. collects the Credit Information Report (CIR) from lender banks and Non-Banking Financial Companies (NBFCs). The CIBIL score is generated based on the CIR.

What is the Importance of the CIBIL Score?

The CIBIL score is a vital factor affecting your personal or business loan eligibility. The first thing a lender verifies is your CIBIL score. The loan may still be approved if the CIBIL score is low, provided there is a security cover, and the lender is assured that the borrower will not default. If the CIBIL score is high, the borrower can negotiate a lower rate of interest. Also, they may avail of lower processing fees and other charges. The decision to sanction a loan or credit is solely exercised by banks. The CIBIL score plays no role in it. It merely guides the lender before executing their decision.

What are the Factors Affecting CIBIL Score?

If you wish to know what affects the CIBIL score, the following factors must be kept in mind.

Payment History

It measures your ability to pay dues on time. Timely payment of dues will enhance your credit score. EMIs are often automatically deducted based on standing instructions. These instructions are already given to banks at the time of the inception of borrowing. Try to ensure your salary is credited to your account before the dues mature or have a reasonable balance to clear off the EMIs. In case there is an inadequate balance in your account, the payment will default. It is pertinent to note that the recent delayed payments have a far more negative impact than old ones. The repayment track record carries 30% weightage. A delay in payment of 30 days can erode 100 CIBIL points. So it is one of the most important factors affecting CIBIL score.

Credit Exposure

Credit exposure measures your loan utilisation against the sanctioned limit. The lower the utilisation, the higher the CIBIL score. It carries 25% weightage.

Borrowing Classification and Duration

It is always advantageous to have a secured loan in your portfolio. It not only gives you a better CIBIL score but also reduces borrowing costs. A higher loan duration coupled with a secured loan is the perfect recipe for a good CIBIL score. The parameter carries 25% weightage.

Period of Borrowing

It is calculated starting from the date you got your first loan sanctioned. The higher the period, the better the credit score. It carries 20% weightage.

Other Factors Affecting CIBIL Score

Recent write-offs and waivers have a long-lasting, adverse impact on your CIBIL score. The credit company also assigns value to the income of the individual. As long as 50% of the monthly income meets the monthly loan repayment, the credit score remains intact. Further, having the salary credited on time every month is an advantage.

Making roving inquiries for loan approval is not advisable because it shows the hunger for credit and adversely affects the credit score.

Important CIBIL Scoring Factors

  • The CIBIL score is calculated based on at least six months and up to 36 months of past transactions.
  • Two hundred and fifty-eight parameters are taken into account to calculate the CIBIL score.
  • Your CIBIL score will exist even if you do not apply for a loan.
  • It is your right to get a free CIBIL report.
  • The CIBIL score may not match with the scores issued by other agencies. It happens because other agencies use different parameters.

How to Improve CIBIL Score?

Below are few methods to improve your CIBIL score.

Develop Consistency

Have a perfect track record when it comes to repaying dues. Never default on credit card dues because they carry a high interest on late payment. Further, prioritise the paying loans on due dates. Developing a rich payment history is the vital key to reach the CIBIL maximum score.

Maintain Low Credit Utilisation

Maintain a credit utilisation ratio of 40%. Further, when you opt for a loan, bid for a high credit limit at the time of approval.

Borrowing Mix

Have diverse loans in your portfolio, such as home, education, and SME business loans and select loans of varying tenure.

Regular Monitoring

Keeping track of credit scores is advisable. It aids in giving the real-time status of creditworthiness.

Reasons for Low CIBIL Score

The following are the reasons for a low CIBIL score.

Paying the Bare Minimum

Paying a small portion of your total dues is never advisable. It may lead to a vicious circle of debt. It is a trait of poor repayment behaviour.

Applying After Rejection

If your loan or credit card application is not approved, pause your efforts temporarily. First, try to improve your CIBIL score, and then reapply for the credit.

Mistake in Credit Score

If there is an error in your CIBIL report, it will unknowingly reduce your CIBIL score. Regularly monitor your CIBIL score and report any discrepancies.

High Percentage of Credit Utilisation

It is never advisable to maintain high credit utilisation. Having credit utilisation above 60% leads to the rampant decline of the CIBIL score. Always opt for a higher credit limit than the sanctioned amount. It not only provides room for extra borrowing without further processing costs but also enhances the credit score.

Small Outstanding Dues

The borrowed amount may be low and not carry any penalty for late payment. It may create a mindset for delayed payment. Remember, the CIBIL score falls equally, irrespective of the amount of delayed repayment.

Improper Planning

It is recommended to have a proper mix of loans. Instead of having only a personal loan, try to segregate it through the appropriate blend of an educational, home, or car loan.

Giving Up Old Credit Cards

We frequently tend to close our relationship with old credit card companies because we get exciting options from the new cones operating in the market. Whenever you give up your old credit card, you also bid farewell to your rich credit history. If you have to close a credit account, opt for a relatively new one. Continue the old credit cards for as long as possible.

What is Settled Status in the CIBIL Score?

You may sometimes be unable to repay the entire amount due to the lender. The bank or other lenders may come up with a restructuring scheme. According to it, you will have to pay a settlement amount lower than what was payable.
The settled status may result in the non-approval of your new loan application as it indicates your inability to repay the full dues. If possible, pay back the entire amount due to the bank where there has been a default. As a result, you will get a full and final certificate. Present it to the CIBIL bureau to improve your credit score.

Tips to Maintain a CIBIL Score Maximum

You can follow these tips to maintain a CIBIL maximum score.

Proper Planning

Make a budget for your monthly expenses. Ensure that your expenses are in line with your income. Try to avoid unnecessary expenses to reduce the credit burden. If you need a loan for education or home purchase, take benefits under Chapter VIA of the Income Tax Act, 1961 to reduce your tax burden.

If you are starting a new venture, availing a loan for business in India is imperative. The borrower money aids in raising the level of operation and achieving economies of scale. It is important that you do proper CIBIL score-related planning so that your business loan eligibility is met.

Credit Caution

Never be tempted to buy a product or service on EMI if not required. Often, people buy things beyond their budget because the EMI option is available. The habit will steadily increase your credit burden and reduce the CIBIL score. As a thumb rule, always ensure that your EMI payments do not exceed 40% of your monthly income.

How to Check Your CIBIL Score?

For checking CIBIL scores, follow these steps.

  • Log on to the CIBIL website.
  • Create your account with CIBIL, if not already created.
  • Verify your identity using a one-time password.
  • View your CIBIL score.

How to Recover From a Low Credit Score?

It is a common misconception that once the CIBIL score declines, there is no scope for recovery. Even if you have hit rock bottom, you can still bounce back. Follow the following steps for a speedy recovery.

Clear Off the Dues

Pay off all your outstanding dues as early as possible. If you have outstanding credit card bills, take a personal loan to repay them. Try to consolidate all your borrowings into a single one. Since credit card default carries a high penalty, try to repay it at the earliest.

Restructure Your EMIs

If you have numerous EMIs running, try to restructure them by either consolidating those EMIs or prepaying them. Ensure that your monthly EMIs do not exceed 30% of your monthly income.


CIBIL 2.0 has been introduced keeping in mind the rapid transition in the business world. Banks and lenders are still transitioning to CIBIL 2.0, which is specifically targeted towards borrowers with a credit history of fewer than six months. Earlier, no CIBIL score was generated for such borrowers. Now, CIBIL 2.0 has parameters that can easily generate the CIBIL score for such borrowers. The range of score is between 1 to 5 points, with 1 indicating “high risk” and 5 meaning “low risk.”


Today, bankers have become very cautious before granting loans on account of rising default cases. CIBIL score and other creditworthiness parameters are properly scrutinised to get a reasonable assurance that the borrower will not default. In such a scenario, it becomes imperative for the borrower to maintain a good credit score. Any default will adversely affect both their current and future borrowing potential. Ensuring credit caution and financial prudence are the essential prerequisites in the process. The ideal way would be to always keep CIBIL scoring factors in mind while financial planning. The CIBIL parameters vary from borrower to borrower and the type of borrowing as well. If you are availing a term loan, the higher the margin deposit, the better the CIBIL score.

FAQs: All About CIBIL Scoring Factors

  • Can the CIBIL bureau modify or remove the credit records?

The CIBIL Bureau does not modify or delete any credit history. It only collects credit history from banks, NBFCs, and other members.

  • What does “NA” mean in a CIBIL score?

“NA” means that the CIBIL Bureau does not have adequate information to generate your credit score. It may be because you have not taken any loan in the past and should not be viewed negatively. If you have an adequate and regular income stream, your loan will be approved without the CIBIL score.

  • What are the disputes that can be raised before CIBIL?

Disputes related to personal information, account information, and duplicated accounts can be raised before CIBIL.

  • Does regularly checking CIBIL score reduce score?

No, the Regular checking of your CIBIL score does not lead to a decline in your CIBIL score.

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