What is CIBIL Score ?
What is CIBIL Score ?
CIBIL score or Credit score both are same, it is represented in number that shows creditworthiness of any individuals. Every lender check and decide the risk for particular borrower. If Credit score or CIBIL score is high, it shows lower risk.
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How CIBIL Score is calculated?
Calculating a Credit Information Bureau (CIBIL) score involves several steps, which are as follows:
Credit Information Collection
The credit bureaus gather credit-related information from various financial institutions, such as banks, credit card companies, and other lenders.
Data Standardization
Once the data is collected, it undergoes standardization to ensure consistency across different sources. This includes verifying personal information, loan details, repayment history, etc.
Credit Report Generation
Based on the standardized data, the credit bureau generates an individual’s credit report, which includes details of their credit accounts, repayment history, credit inquiries, defaults, etc.
Weightage Assignment
Each factor contributing to the creditworthiness of an individual is assigned a specific weightage. These factors typically include payment history, credit utilization ratio, length of credit history, types of credit accounts, and new credit inquiries
Score Calculation
Using a proprietary algorithm, the credit bureau calculates the credit score based on the information in the credit report and the assigned weightage to each factor. This algorithm is designed to assess the likelihood of an individual defaulting on their credit obligations in the future.
Score Range Definition
The calculated credit score is then mapped to a predefined range, typically between 300 and 900, where a higher score indicates lower credit risk and vice versa.
Score Interpretation
Finally, the credit score is interpreted to provide insights into an individual’s creditworthiness. Lenders use this score as a quick and objective measure to evaluate the risk associated with extending credit to a particular individual.
How CIBIL score will decrease ?
A CIBIL score, like any credit score, can decrease due to various factors. Here are some common reasons why a CIBIL score may decrease-
Late Payments
Missing or making late payments on credit accounts, loans or bills can significantly impact your CIBIL score. Payment history typically carries a high weightage in credit score calculations.
High Credit Utilization Ratio
Utilizing a high percentage of your available credit limit can negatively impact your score. Keeping credit card balances close to or at the credit limit indicates higher credit risk to lenders.
Defaulting on Loans
Defaulting on loans or credit accounts, such as mortgage loans, personal loans, or credit cards, can severely damage your credit score.
Applying for Multiple Loans or Credit Cards
Making so many credit inquiries within a short period, especially if they result in new credit accounts being opened, can lower your score. It may indicate to lenders that you are financially stressed or a higher credit risk. If you want to Apply for startup-funding, personal loan, business laon & property loan, you may contact us.
Closing Old Credit Accounts
Closing old credit accounts can reduce the length of your credit history, which may negatively impact your score. A longer credit history generally reflects positively on your creditworthiness.
Errors on Credit Report
Mistakes or inaccuracies on your credit report, such as accounts that don’t belong to you, incorrect payment statuses, or outdated information, can lead to a decrease in your score.
Foreclosure or Bankruptcy
Major negative events like foreclosure, bankruptcy, or court judgments can have a significant and long-lasting impact on your credit score.
Public Records
Having liens, judgments, or other negative public records on your credit report can lower your score. You need to maintain it for further lending eligibility from various lenders.