What is CIBIL Score? How Does it Calculate

Credits and loans have become more formal and reliable in India due to different factors. This article will discuss one such factor namely “CIBIL score”. It will provide you with basic information about the CIBIL score, its significance, and how it calculates.

What is CIBIL Score?

Lending institutions issue credits and loans only to the people who they find reliable regarding payback. The new concept is the “CIBIL Score” used as a vital metric for the computation of a person’s creditworthiness.

Importance of CIBIL Score

RBI has licensed four companies providing reliable credit information for loan applicants. Established in 2000, CIBIL is the most well-known as well as the first company among them. CIBIL stands for the Credit Information Bureau India Limited. It indicates a primary agency aims to assign credit scores and create credit reports for individuals.

CIBIL score is a 3-digit number score assigned to an individual stating the summary of his credit rating and history. TransUnion assigned a range to CIBIL score as 300 to 900. Higher the score, the better the creditworthiness of individuals.

Why does the CIBIL Score Matter?

CIBIL score is significant for financial institutions as well as people. Financial institutions get assistance via the CIBIL score in checking an individual’s creditworthiness. They can analyze whether they are lending money to the right hands.

For companies and people like us, a higher CIBIL score offers tremendous benefits such as quick loan dispersal, achieving loan approvals, and availing of loans at lower interest rates. 

How to Calculate Credit Score?

TransUnion CIBIL uses varied sources for calculating your CIBIL score.

  • Individual’s financial data of a minimum of 6 months
  • A Credit exposure (total outstanding credit amount) – 25% score weightage
  • The Credit history (servicing of past debt agreements) – 30% score weightage
  • Credit duration and mix (loan duration along with credit portfolio percentage) – 25% score weightage
  • Other sources (current credit behavior and credit utilization) – 20% score weightage

In conclusion, it is necessary for you to possess a higher CIBIL score to accomplish a loan application process without hassles. Most financial institutions use the CIBIL score to examine the creditworthiness of received credit applications whether to approve or refuse.

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