CIBIL Score Calculation Methodology
Understanding how your CIBIL score is calculated can help you make better financial decisions and improve your creditworthiness. Learn about the factors that influence your score and their relative importance.
How CIBIL Score is Calculated
Your CIBIL score is a three-digit number ranging from 300 to 900 that represents your creditworthiness. TransUnion CIBIL uses a proprietary algorithm to calculate this score based on information in your credit report. While the exact formula is not publicly disclosed, several key factors are known to influence your score.
The CIBIL score calculation takes into account your entire credit history, typically covering the last 24-36 months. Recent credit behavior is given more weight than older history. The score is updated whenever lenders report new information to CIBIL, which usually happens monthly.
Payment History (35%)
Your payment history is the most significant factor in your CIBIL score calculation, accounting for approximately 35% of your score. It reflects how consistently you've paid your credit obligations on time.
What's Included
- Payment status of credit cards, loans, and other debt
- Presence of delinquencies, defaults, settlements, or bankruptcies
- Time since delinquency and frequency of missed payments
- Amount of money still owed on delinquent accounts
- Number of accounts paid as agreed
Impact on Score
Even a single late payment can significantly impact your score, and the effect increases with the severity and recency of the delinquency. Negative marks can remain on your report for up to 7 years.
Credit Utilization (30%)
Credit utilization refers to the percentage of your available credit that you're currently using. It accounts for approximately 30% of your CIBIL score. Lower utilization rates are associated with higher scores.
What's Included
- Total balance on credit cards relative to total credit limits
- Utilization ratio for each individual credit card
- Number of accounts with balances
- Amount owed on installment loans compared to original loan amounts
Ideal Utilization Ratios
Credit utilization is calculated monthly when lenders report to CIBIL. Paying down balances before your statement date can quickly improve this factor and boost your score.
Credit Age (15%)
The length of your credit history accounts for approximately 15% of your CIBIL score. Generally, a longer credit history indicates more experience managing credit and results in a higher score.
What's Included
- Age of your oldest credit account
- Age of your newest credit account
- Average age of all your accounts
- How long specific types of accounts have been established
- Whether you've used certain accounts recently
Impact on Score
Avoid closing your oldest credit accounts, even if you don't use them frequently. Consider keeping them active with small, regular purchases that you pay off immediately to maintain the length of your credit history.
Credit Mix (10%)
Credit mix refers to the variety of credit accounts in your portfolio and contributes approximately 10% to your CIBIL score. Having experience with different types of credit demonstrates your ability to manage various credit obligations.
Types of Credit
- Revolving Credit: Credit cards, overdraft facilities
- Installment Loans: Personal loans, auto loans, education loans
- Secured Loans: Home loans, loans against property
- Open Credit: Charge cards that must be paid in full
Ideal Credit Mix
An ideal credit mix typically includes at least one revolving account (like a credit card) and one installment account (like a personal loan or home loan). However, you should only apply for credit you actually need, not just to improve your mix.
While having a diverse credit mix can help your score, it's not advisable to take on unnecessary debt just to improve this factor. Focus on maintaining a mix of accounts that you can manage responsibly.
Credit Inquiries (10%)
Credit inquiries account for approximately 10% of your CIBIL score. These occur when lenders check your credit report after you apply for credit. Multiple inquiries in a short period can indicate higher credit risk.
Types of Inquiries
- Hard Inquiries: Occur when you apply for credit and the lender checks your report. These can impact your score.
- Soft Inquiries: Occur when you check your own score or when companies check your report for pre-approved offers. These don't affect your score.
Impact on Score
Multiple inquiries for the same type of loan (like a home loan) within a 14-45 day period are typically counted as a single inquiry for scoring purposes, as this is recognized as rate shopping.
Other Factors That May Affect Your Score
Factors That Don't Directly Affect Your Score
- Income and Employment: Your salary and job are not reported to CIBIL and don't directly impact your score
- Demographic Information: Age, gender, marital status, religion, and nationality don't affect your score
- Checking Your Own Score: Viewing your own credit report is a "soft inquiry" and doesn't lower your score
- Spouse's Credit History: Your spouse's credit history doesn't affect your score unless you have joint accounts
- Utility Bills and Rent Payments: These typically aren't reported to CIBIL unless they go to collections
Common Misconceptions
- Myth: Closing credit cards improves your score
Fact: It can actually hurt your score by increasing utilization and reducing average account age - Myth: You need to carry a balance on credit cards to build credit
Fact: Paying in full each month is best for your score and finances - Myth: All credit inquiries hurt your score equally
Fact: Only hard inquiries impact your score, and multiple inquiries for the same loan type within a short period count as one - Myth: Having no debt gives you a perfect score
Fact: Having and responsibly managing some credit accounts is better for your score than having no credit history
Check Your CIBIL Score Now
Now that you understand how your CIBIL score is calculated, check where you stand and identify areas for improvement.
Frequently Asked Questions
How often is my CIBIL score recalculated?
Your CIBIL score is recalculated whenever new information is reported to the credit bureau by lenders, which typically happens monthly. Most lenders report account updates around your statement date. This means your score can change multiple times throughout the month as different lenders report information on different schedules.
Can my CIBIL score be different from different credit bureaus?
Yes, your credit score can vary between different credit bureaus in India (CIBIL, Experian, Equifax, and CRIF Highmark). This happens because not all lenders report to all bureaus, and each bureau may use slightly different scoring models. The variations are usually minor, but it's a good practice to check your score from multiple bureaus periodically.
Does paying off a loan early negatively affect my CIBIL score?
Paying off a loan early generally doesn't negatively affect your CIBIL score. In fact, it can be positive as it reduces your overall debt burden. However, some lenders may charge prepayment penalties, and closing the account means you lose that active credit line, which could slightly impact your credit mix and average account age. For most people, the financial benefits of paying off a loan early outweigh any minor, temporary impact on your credit score.
How are joint accounts reflected in my CIBIL score?
Joint accounts appear on the credit reports of all account holders, and the payment history affects everyone's credit scores equally. This means if payments are made on time, both parties benefit. Conversely, if payments are missed, both credit scores will suffer. It's important to maintain open communication with joint account holders about payment responsibilities, as you're equally liable for the debt regardless of who makes the purchases or payments.