Is Your CIBIL Score Secretly Dropping? The Mistake You Might Be Making Right Now!

Introduction

A credit score is often the first thing a lender assesses when you apply for a loan or a credit card. In India, the Credit Information Bureau (India) Limited (CIBIL) score is the most widely recognised metric.

So, what is a CIBIL score? It is a three-digit summary of your credit history, ranging between 300 and 900. It reflects your creditworthiness based on your past borrowing and repayment behaviour. A higher score indicates a responsible credit behaviour, making it easier for you to secure credit at competitive rates.

Table Of Content

• Introduction
• 5 Key Factors That Determine Your CIBIL Score (With Weightage)
• How CIBIL Score is Calculated: The Algorithm Explained
• Conclusion: Tips to Improve and Maintain a 750+ CIBIL Score
• FAQ

5 Key Factors That Determine Your CIBIL Score

Your credit score depends on several financial habits, not just one event. Each factor has its own level of importance in the final score.

• Repayment History: This is the most significant component of your score. It tracks how consistently you have paid your previous EMIs and credit card bills. Even a single delayed payment can cause your score to dip. Lenders view timely repayments as a sign of financial discipline.
• Credit Utilisation Ratio: This factor looks at how much of your available credit limit you are actually using. If you constantly exhaust your credit card limits, it suggests a high dependency on credit, which can negatively impact your score. Maintaining low utilisation across all your cards is generally seen as a positive trait.
• Credit Mix: A balanced portfolio of credit contributes positively to your score. This involves a mix of secured loans (such as home or car loans) and unsecured loans (such as personal loans or credit cards). A healthy mix shows that you can manage different types of credit responsibly.
• Length Of Credit History: The age of your credit accounts also matters. The longer you have been using credit and honouring your repayments, the more data the bureau has to establish your reliability. This is why keeping older credit cards active is often recommended.
• Recent Credit Inquiries: Whenever you apply for a new loan or card, the lender runs a 'hard inquiry' on your credit report. Multiple inquiries in a short duration can signal that you are 'credit hungry', which might lower your score temporarily.

How CIBIL Score Is Calculated: The Algorithm Explained

The process of calculating a credit score involves a complex algorithm that evaluates hundreds of data points from various banks and financial institutions.

Under current RBI regulations, lenders must report your credit data every 15 days. This fortnightly reporting makes your CIBIL score is more dynamic than ever, reflecting repayments or new debts twice a month instead of the traditional 30-45 day cycle.

It is important to note that the algorithm does not consider your income, investment portfolio, or savings account balance. It is strictly based on your credit-related activities.

Conclusion

Maintaining a score above 750 requires consistent effort and a structured approach to your finances.

The most effective way to maintain a healthy score is to ensure every payment is made on time. You should also keep your credit card spending well within your assigned limits and avoid applying for multiple loans simultaneously.

Periodically checking your credit report for any inaccuracies and raising a dispute through the official channel can also prevent your score from dropping due to clerical errors.

We, at Kotak Mahindra Bank, believe that a good credit score is the key to financial freedom. We can help you on your path, whether you want to buy your first home or use a credit card to pay for everyday things. We have a clear method and advice to help you easily understand your credit needs.

For help choosing the best products to meet your financial objectives and keep your credit score high, contact Kotak Mahindra Bank.