Exploring the Weightage of Different Factors in CIBIL Score Calculation

In India, your financial health is often represented by a three-digit number known as your CIBIL score. The Credit Information Bureau (India) Limited, commonly referred to as CIBIL, is one of the leading credit bureaus in the country responsible for generating these scores. Your CIBIL score is a critical factor that lenders, banks, and financial institutions use to assess your creditworthiness when you apply for loans, credit cards, or any other form of credit. It's essential to understand how a CIBIL score is calculated and what factors contribute to it.

In this article, we'll explore the weightage of different factors in CIBIL score calculation and their significance in our financial life.

Understanding CIBIL Score Calculation

Your CIBIL score is a three-digit number that typically ranges from 300 to 900. This score reflects your creditworthiness and is calculated based on various factors related to your credit history and financial behaviour. The exact formula for calculating the CIBIL score is proprietary and not disclosed to the public. However, it is widely known that several key factors play a role in determining the score.

The Weightage of Different Factors in CIBIL Score Calculation & Its Significance

While the precise weightage of each factor in CIBIL score calculation is not publicly disclosed, industry experts have a general understanding of the impact of these factors. Additionally, understanding the weightage of different factors would allow you to recognise the significance of each element in your credit profile.

Here are the primary factors that contribute to your CIBIL score and their respective weightage:

1. Payment History (Approximately 35%):

Payment history is one of the most critical factors in CIBIL score calculation. It evaluates your ability to make timely payments on your credit accounts, such as loans, credit cards, and utility bills. A history of on-time payments can significantly boost your CIBIL score, while late payments, defaults, or settled accounts can have a negative impact.

Significance: The payment history is the most influential factor in CIBIL score calculation, accounting for approximately 35% of the score. Even a single late payment can have a negative impact on your score. Consistent on-time payments can significantly boost your score.

2. Credit Utilisation (Approximately 30%):

Credit utilisation, often referred to as credit card utilisation, is the ratio of your credit card balances to your credit limits. It's a crucial factor in CIBIL score calculation. Keeping your credit card balances low in relation to your credit limits demonstrates responsible credit management and positively influences your score.

Significance: Credit utilisation accounts for about 30% of your CIBIL score. Maintaining low credit card balances in relation to your credit limits is vital for a strong credit score. Ideally, you should aim to keep your credit utilisation below 30% to demonstrate responsible credit management.

3. Length of Credit History (Approximately 15%):

The length of your credit history is another important element in CIBIL score calculation. A longer credit history allows credit bureaus to assess your financial behaviour over a more extended period. In general, a more extended and positive credit history can contribute to a higher score.

Significance: The length of your credit history comprises approximately 15% of your CIBIL score. While it's not the most heavily weighted factor, it's still essential. If you have a short credit history, you may need to be patient and establish a consistent track record of responsible credit behaviour.

4. Types of Credit (Approximately 10%):

The types of credit you have also impact your CIBIL score. A mix of different types of credit, such as loans and credit cards, can be viewed positively. It demonstrates your ability to manage various forms of credit responsibly.

Significance: The types of credit you have make up about 10% of your CIBIL score. While this factor has a relatively lower weightage, it's still valuable. Maintaining a mix of different credit accounts would help boost your CIBIL score simultaneously.

5. New Credit Inquiries (Approximately 10%):

Each time you apply for a new credit card or loan, it results in a credit inquiry. Multiple credit inquiries within a short period can negatively affect your CIBIL score. Frequent applications for new credit can be perceived as financial distress or a potential risk.

Significance: New credit inquiries are responsible for roughly 10% of your CIBIL score. Be cautious when applying for new credit, especially within a short timeframe. Multiple inquiries can suggest financial instability, potentially lowering your score.

6. Credit History (Approximately 10%):

Your overall credit history, including both positive and negative aspects, is a consideration in CIBIL score calculation. If your credit history includes a significant number of late payments, defaults, or collection accounts, it can lower your score.

Significance: Your overall credit history, including both positive and negative aspects, accounts for approximately 10% of your CIBIL score. While negative marks, such as late payments or defaults, can lower your score, a consistent record of positive credit behaviour can mitigate their impact.

Improving Your CIBIL Score

Understanding the weightage of different factors in CIBIL score calculation can be a valuable tool for improving your credit score. Here are some steps you can take to enhance your score:

1. Make Timely Payments: Prioritise making all credit payments on time, as payment history carries the most weight in your score.

2. Manage Credit Card Balances: Keep your credit card balances low in relation to your credit limits to maintain a healthy credit utilisation ratio.

3. Maintain a Mix of Credit: If possible, manage various types of credit responsibly to demonstrate your ability to handle different financial products.

4. Limit New Credit Inquiries: Be selective when applying for new credit and avoid frequent credit inquiries.

5. Review Your Credit Report: Regularly review your credit report to check for inaccuracies and address any discrepancies promptly.

6. Establish a Long Credit History: While it may take time, building a long and positive credit history can help improve your CIBIL score.

The Bottom Line

Your CIBIL score is a vital aspect of your financial life in India, and it's essential to understand the weightage of different factors in CIBIL score calculation. By recognising the significance of each factor, you can take steps to improve your credit profile and aim for a higher credit score. Responsible financial practices, including timely payments, prudent credit utilisation, and careful management of your credit history, are key to maintaining a strong CIBIL score and enjoying the benefits of a healthy credit profile.