Factors that determine your CIBIL score and how to improve it

Published: October 8, 2020 at 10:24 am

Credit Score is a number given to an individual/company to assess their creditworthiness. This is calculated to help the banks to decide whether the borrowers are capable of repaying the money on time. This article on credit score is meant for newbies. The factors that determine a CIBIL score calculation are explained with ways to improve it.

About the author: Harshini Gopu works in a global financial institution as a senior associate. She is experienced in credit risk and capital management. She is also a budding artist.

Credit scores are also used to decide the quantity of money/principal they can lend, how much interest rate can be charged, term period of the loan, repayment schedule etc. So it is good to keep your credit score high to borrow loans at the cheap interest rate in the market.

There are various credit bureaus that are calculating credit scores and give it to the banks and other financial institutions. Every country has different credit bureaus. For example, FICO score is used in the US, similarly, CIBIL score is used in India. There are also other SEBI approved bureaus like CRISIL, ICRA, and Equifax etc which calculate the credit scores. However, Indian banks mostly use CIBIL score.

Does this mean CIBIL decides whether you get a loan or not? No, the lender or the Bank decides whether to lend you the money or not, CIBIL just collects information from Banks and other financial institutions and calculates your score.


CIBIL Score is a three-digit number which ranges from 300 to 900. The higher your score towards 900, the higher the chances of your loan getting approved. In other words, the chance of you getting defaulted is high when your score is lower towards 300. It is important to know that more than 90% of loans which are sanctioned is for the people having a score of above 750. To improve your credit score and to borrow at the best interest rate, it is very important to understand the factors involved in calculating the score.

Factors involved in CIBIL score and how to improve

The main factor is your repayment history. Making a late payment on your credit card dues or not paying your EMI on time will negatively impact your score. Most banks consider loans as non-performing assets (NPA) when you fail to repay for more than 90 days. As this will cost more to banks, they won’t lend to you if you have a poor repayment history. So always remember to pay your dues on time to improve your score.

 The next factor is high credit utilization. Using most of your maximum limit in your credit card or borrowing high-value loans when compared to your income will negatively impact the credit score. If you have a credit card limit of Rs. 2 lakh and say you use up to the maximum limit in every billing cycle then this might affect your credit score.

It is also important to have a balanced mix between secured (such as home, auto loan) and unsecured loans (personal loan or credit card). In a short period of time, borrowing multiple personal loans which are not secured will also affect your score. Therefore credit mix and duration is more important to increase the credit score. Let us see one more factor which is important for getting a loan sanctioned even though it is not directly linked with the credit score.

 EMI to Income Ratio – This ratio is very important to the lenders to decide the loan amount, tenure and EMIs. Banks assume that at least 40-50% of your NTH (Net take-home salary) is needed for living expenses after paying all EMI. So make sure your EMI & Dues are not more than 40-50% of your income. This will also help you to have a financial discipline without getting more debts.

How to check CIBIL score: CIBIL score can be checked from their site for free once a year.

Will checking your CIBIL Report repeatedly affect the Credit Score? When we check our own score, it’s known as “soft enquiry“ and it will not affect your credit score. Checking our score once a year will help us to know our creditworthiness.

However, when we apply for a loan from the bank then the lender will enquiry your credit score from CIBIL, it’s known as “ hard inquiry”. Multiple hard enquiries in a short period of time will definitely affect your score. So it’s always important to make sure that we do not enquire about a loan from multiple banks.

I am urgently in need of a personal loan but my CIBIL score is too low since I have dues unpaid in my educational loan, the Bank has rejected my application. If I repay all the pending dues and close the educational loan will my credit score improve immediately?

Even if you repay all your unpaid dues tomorrow it will take 45-60 days to get updated in the Credit Bureaus record.

How to improve your credit score?

  1.  Pay your dues or EMI on time.
  2. Maintain a balance between secured and unsecured loans.
  3. Do not use your credit card to its maximum limit.
  4. Do not enquire about loans from multiple banks.
  5. Do not borrow multiple loans in a short duration of time.
  6. Always avail longer tenure for repayments and try to pay the part payments on time.

You have to be credit disciplined in such a way to increase your credit score and to get loans approved at the best interest rate in the market.


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