The Reserve Bank of India has authorized four credit information companies to collect information on credit users. Experian, Equifax, CRIF Highmark and TransUnion CIBIL are the four credit information bureaus in India that study how individuals use credit, how dependent they are on it and how responsible they feel about its repayment. Based on the information collected, credit information companies assign a score to each credit user, which is known as the credit score. The credit score ranges from 300 to 900.

However, credit scores assigned by certain credit information agencies can also range from 300 to 850. In this article, we focus on credit score calculation and the factors that credit information agencies take into account while calculating an individual’s credit score. Knowing the factors that impact cibil score calculation and the extent of their impact helps borrowers maintain an excellent credit score and negotiate for the best loan terms and conditions when availing of a secured or unsecured loan.

Credit Score Calculation Simplified 

Credit information agencies analyze these five factors while deciding the credit score to be assigned to a credit user. 

1. Repayment History: A credit user’s repayment history says a lot about them and is one of the key factors that affect their credit scores. An individual’s repayment history makes up close to 35% of their credit score. Credit users who have a clean repayment history with no cases of missed EMIs and loan default are perceived as individuals with a responsible attitude towards credit. Consequently, such individuals have excellent credit scores. Credit users must know that while one or two missed EMIs do not impact one’s credit score significantly, missing too many EMIs will certainly cause your credit score to take a hit and your chances of being able to avail of a loan on the most beneficial loan terms and conditions to go down. 
2. Credit Utilization Ratio: All credit information agencies keenly study how a credit user uses their credit cards. Individuals who exhaust their credit cards every month and then pay only the minimum amount due are seen as high-risk individuals by lenders. These are individuals who are excessively dependent on credit and therefore, when a lender does business with such borrowers, the chances of loan default are quite high. Credit Utilization Ratio makes up 30% of one’s credit score and individuals with credit utilization ratio often get rejected for loans. 
3. Hard Enquiries or Dependency on Credit: Lenders very keenly study how dependent an individual is on credit. For this, they primarily study the number of hard enquiries they have under their name. Hard enquiries are enquiries that a lender makes about loan applicants, primarily to study the loan applicant’s creditworthiness and repayment capacity and the risk in doing business with them. Too many hard enquiries imply excessive dependency on credit and therefore, borrowers who have too many hard enquiries under their name have a low credit score. Hard enquiries make up 10% of an individual’s credit score. Credit users must never apply for too many loans at the same time. They must also apply for credit only when they really need it.
4. Credit Mix: Credit mix refers to the type of loans you have. Lenders prefer to sanction loans to individuals who have both secured and unsecured loans as their credit mix proves their ability to handle all kinds of debt. Such individuals therefore have a better credit score. The credit mix you have makes up 10% of your credit score. 
5. Length of Your Credit History: The length of your credit history also impacts your credit score and makes up 15% of it. The longer your credit history, the better will be your credit score.

Final Words 

Those planning to apply for a housing loan must have the ideal cibil score for home loan. The CIBIL score is the credit score assigned to borrowers by TransUnion CIBIL, the oldest and the most popular credit information agency in India. A credit score or CIBIL score in the range of 750 to 900 is considered a good CIBIL score range for home loans. Maintaining such a credit score helps borrowers establish eligibility for the best loan terms and conditions as a CIBIL score in this range is considered the mark of a borrower who can be trusted with timely repayment of loan EMIs and the home loan.