A recent survey has reflected that 2 out of 3 Indians are unaware of what a CIBIL score is and its significance. Despite RBI’s continuous efforts to educate citizens about financial terminologies and their importance, few fail to keep up with these very important parameters that affect their financial standing.
Individuals must know how to calculate their CIBIL score as it represents one’s creditworthiness as a borrower. Credit rating agencies, or companies in charge of assigning this rating, allow individuals to check their score without costs.
One can access this report online for free from the website of credit rating agencies and financial institutions
How to get CIBIL report free of cost?
Here is a step-by-step guide to getting a CIBIL report for free –
Step 1: Use your email ID and contact number to create an account.
Step 2: Enter personal details such as date of birth, address, and ID proof details like PAN, Aadhar number.
Step 3: Verify the details through OTP.
Step 4: Get your credit score and credit report.
Thus, you can check your CIBIL score for free by following these few simple steps.
Since it is not a hassle to get a credit report, one can regularly go through it to assess their ability to secure a loan. Additionally, they should learn about the components of a credit report to understand it better. It is also crucial to look out for any mistakes in this report and correct them to improve their credit score and avoid facing rejection during loan application.
How to calculate CIBIL score?
CIBIL stands for Credit Information Bureau India Limited and is a credit rating agency that prepares credit reports for Indian borrowers and assigns them a score.
Therefore, it is difficult to say what method they apply for this purpose.
Nonetheless, one can always learn about the factors that a credit rating agency considers while calculating this score. Here are the details –
1. Repayment history
This is the first factor considered by such agencies, as it denotes one’s responsibility as a borrower. Hence, individuals who pay their dues on time end up boosting their credit score significantly. Contrarily, failing to do so can lower this score.
2. Current debt
Existing debt also plays a factor in credit score calculation. It includes the amount of debt one has outstanding and how much they have used over time. In this regard, credit rating agencies also consider the credit utilisation ratio. This ratio represents the amount one has used against his/her total credit card limit.
Financial experts suggest that to keep the credit score higher, individuals should try to keep this ratio as low as possible. Doing so consequently increases their chance to secure a loan.
3. Credit mix and their duration
Credit mix refers to the types of loans one has availed over the years. Ideally, individuals with a healthy mix of unsecured and secured loans make a positive impression of being a responsible borrower. It shows that a particular borrower is capable of managing debt without any issues.
The duration, on the other hand, signifies loan tenor. It denotes how borrowers manage their debt and whether they are making timely payments or not.
4. Credit enquiries
Credit enquiries made by lenders also affect this score. Whenever an individual applies for a loan, financial institutions make a credit inquiry to learn about the applicant, and credit bureaus consider them hard inquiries. In case of frequent hard inquiries, the credit score of an individual may be negatively affected.
Being aware of how to calculate CIBIL score helps individuals to learn the ways to maintain and improve them. Nonetheless, along with this score, individuals should also be aware of their credit report and its significance to gauge their loan eligibility and other such parameters.
Along with learning the points to improve CIBIL score, individuals should look out for pre-approved offers while applying for credits. Offers like these streamline the loan application process and saves time for existing borrowers. These offers are available on various financial products like personal loans, business loans, etc. Prospective debtors can check their pre-approved offers by submitting their important contact details.
Learning how to calculate CIBIL score and the factors that affect it is useful for borrowers, as it helps them to improve their credit score. With improved creditworthiness, they can easily apply for any loan without any hassle.
- Every credit rating has a proprietary algorithm regarding credit score calculation, and CIBIL is no different.