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CIBIL score is the credit score of a person or legal entity In India. It means the capability and creditworthiness of the individual or company based on their past track records. It is referred to by Banks and Financial Institutions to determine the risk involved in granting a loan or credit card to any individual or company

Cibil score varies from a range of 300 to 900, with 300 being a low score and 900 being considered a very good score. If the CIBIL score is 300, it means that the probability of default and risk involved in granting a loan to such individual or company is high, whereas a score of 900 would mean that the probability of risk involved and default in payment is low. Most Banks, Credit Card Companies and other Lending agencies generally approve applications of individuals and companies that have CIBIL score more than 700-750 easily. 80% of the overall loans disbursed by Banks and lending agencies are granted to individuals and Companies whose CIBIL score is above 750. However, these criteria vary from each individual lending agency depending upon its own policies and other factors.

CIBIL score is calculated based on various factors by CIBIL department in order to understand and help the lending agencies to determine the risk and probability of payment default that can be made by an Individual or Company basis their past track records and loan transactions. Therefore, the Banks, Credit Cards Companies, NBFC’s and other financial institutions consider the CIBIL score of the Company or Individual before approving their application for a credit card or a loan.

CIBIL score of a company or Individual depends mainly on the following four majorly factors. Each factor carries a certain amount of weightage:

  1. Past Performance – Past performance means whether the individual makes the repayment of the loan or credit card on time or not. Each credit card company or Loan granting Banks and institutions define a due date for the payment of the instalment. If the Individual or company defaults on the payment of the loan by the due date, it impacts the past performance score negatively. The overall Weightage given to this in the total calculation of CIBIL score is 30%. The individual or Company should clear the minimum outstanding before the due date in order to keep the past performance score in control. The major factors considered in this are the past payment records and default history, basis which the past performance score is calculated.
  2. Credit Mix and Duration – This aspect carries a weightage of 25%. It defines the types of loans availed by the individual or Company. Generally, a mix of secured and unsecured loan is considered good and helps in improving the CIBIL score. Secured Loans include Home Loans, Car Loans, gold loans, loans against FD etc where a commodity is mortgaged against the loan. Unsecured loans include education loan, marriage loan, personal loan, credit card where no product is mortgaged against the loan. A mix of secured and unsecured loans helps in improving and increasing the CIBIL score. However, if the company or individual has only availed unsecured loan or a credit card, it may negatively impact the CIBIL score of the individual or company. Therefore, it is important to maintain a credit mix of both secured and unsecured loans for increasing the CIBIL score. Too many loans or credit card applied within a short duration of time also negatively impacts the overall CIBIL score.
  3. Leverage – Leverage carries a weightage of 25% in the total CIBIL score calculation and means the percentage of credit or loan limit in use. It means that if the individual or company use the credit facility excessively, the CIBIL score would be negatively impacted. For example, if the loan limit of an individual is 10 lakhs and the user takes a loan of 9 Lakhs, it would negatively impact the CIBIL score. Very high usage of credit card in accordance to the income or over usage of credit card limit, for example, if credit card limit is 1 Lakhs and the individual uses 95,000/- and does not maintain good balance on expenditure, the CIBIl score will be negatively impacted. Too much of credit facility availed leads to a negative impact on the CIBIL score.
  4. Others – There are certain other undisclosed factors by CIBIL which carry weightage of 20%, Some of these factors include no of loan enquiries made by individual or company, if too many enquiries are generated within a short duration, it creates a little negative impact. There are many other undisclosed factors involved in this aspect.

It is important to maintain a good CIBIL score for availing any kind of loan or credit facility from any of the financial institutions in India.


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