Why is a CIBIL Score Important?
Contents
A good CIBIL score offers several advantages:
- Faster loan approval
- Better chances of credit card approval
- Lower interest rates
- Higher loan eligibility
- Higher credit card limits
- Better negotiation power with lenders
- Improved financial credibility
Better chances of credit card approval
Lower interest rates
Higher loan eligibility
Higher credit card limits
Better negotiation power with lenders
Improved financial credibility
How is a CIBIL Score Calculated?
Although the exact algorithm is confidential, the following factors significantly influence your score.
1. Repayment History (Most Important)
Timely payment of EMIs and credit card bills positively impacts your score.
Late payments, defaults, or missed EMIs can significantly reduce it.
2. Credit Utilization Ratio
Credit utilization refers to the percentage of your available credit that you use.
Experts recommend keeping utilization below 30%.
Example:
Credit Limit: ₹1,00,000
Outstanding Balance: ₹20,000
Credit Utilization = 20%
Lower utilization reflects responsible credit management.
3. Length of Credit History
Older credit accounts help establish a longer and more stable credit history, which can positively influence your score.
4. Credit Mix
A balanced combination of secured loans (such as home or vehicle loans) and unsecured loans (such as personal loans or credit cards) demonstrates responsible borrowing behavior.
5. Credit Enquiries
Each time you apply for a loan or credit card, a hard enquiry is recorded.
Too many enquiries within a short period may indicate higher credit risk.