How is Credit Score Calculated in INDIA?

This is the key factor for bureaus during credit score calculation. Whether it is a personal loan, home loan, car loan or your credit card dues, all these are considered in your repayment history. Your repayment history showcases important facts regarding financial matters like missed or late payments, bankruptcies as well as displays your behaviour into how you make payments against the debts that you have. When credit bureaus calculate your credit score, the algorithms that they use will usually take into account your repayment history, due amount and how regularly you pay your dues and when as well as how frequently your payments were missed.

One of the most important variables taken into account in the method for calculating credit score, credit utilisation ratio plays a vital role in your CIBIL score. CUR is defined as the total amount of credit that you have used in a month against the credit limit that is available to you. This ratio has a big impact on your credit score and financial experts’ advice to keep the CUR below 30 percent as a higher percentage can affect your credit score. You should also be extremely regular with credit card payments and should ensure that you pay your dues in full and in a timely fashion.

When credit score is calculated, the number of credit accounts you have is taken into account. Your portfolio of loan or credit accounts or the kind of credit mix you have on your name also effects how is credit score calculated. When you have different types of credit products like credit card, auto loan, personal loan, auto loan in your name, it can help in boosting your credit score.

The duration or age of credit lines means how long your credit card or loan has been going on for. The older your credit card or loan is the better will be the credit score calculation. This is why loan experts often advise prospective borrowers not to close off old accounts or credit cards even if all the debt have been paid off. A long credit history provides banks or other lenders a chance to make an informed decision on whether you qualify as a low-risk borrower.

Apart from the above-mentioned factors, the number of hard-inquiries also affect your credit score. These inquiries are made by the borrowers to which you have applied for a credit. If there are multiple hard inquiries under your name, this can negatively change your credit score.

Thus, it is of utmost importance that you take apt and sufficient steps to increase your credit score gradually. A good credit score can prove to be a deal-maker in many loan applications.