How is CIBIL Transuinion Credit Score Calculated for Indian Consumers ?

CIBIL is the Largest Credit Bureau in India as on date. In association with Transunion, they’ve been providing CIBIL Transunion Scores to consumers directly since Q2, 2012. Since 2008-09, CIBIL Scores were provided only to financial institutions to help evaluate the consumer. Many of you asked us – How CIBIL Score is Calculated and the Methodology for the same? [We had to touch base with several leading Banks, CIBIL and Institutional Finance experts to answer your question]

If you don’t know what a CIBIL Transunion Score is, kindly read the same here.

How is CIBIL Transunion Score Calculated ?
There are various factors which influence the score such as payment history, outstanding debt, length of credit history, number and types of loan accounts, utilization, applications for new credit etc. However, it is important to note that each member i.e. Banks, NBFCs etc (that chooses to use the CIBIL Score) has its own benchmark of the number that constitutes a “good” score and varies from Bank to Bank.

There are 4 major factors that affect the scores of an individual. These are described below

Late payments or defaults in the recent past The payment history has a significant impact on the score. Hence, if you have missed payments on your existing loans, over the last couple of years, the score will be negatively affected as it indicates you have / had trouble servicing existing payment obligations.

High utilization of credit limits This is especially true with reference to Credit Cards. Increased Spending on Credit Cards will not necessarily affect your credit score if you are paying off in full every month. However, gradual increase in OUTSTANDING on the Credit Card will affect your score negatively.

Credit Cards / Personal Loans These both are Unsecured Credit easy to obtain but are expensive [Rate of Interest] More the number of unsecured loans with high utilization, larger are the payment obligations thus resulting in high rate of interest outgo and consequently lower would be the score despite satisfactory payment track record. Also, Home Loans or Auto loans (commonly known as secured loans) consistent payment track record will yield you a more favorable CIBIL Score.

Written Off / Settled Affects One or more loan accounts written off, will definitely affect your score negatively. If you have Settled a Loan account in the past, and if you have been able to meet all your payment obligations in the subsequent 36 months, this will not affect your score much, though Settled status will make the Lender cautions before sanctioning the loan and will ask you for an explanation. So keep all the documents of Settlement handy.

Credit Hunger Pulls Down your Score
In the report below, you can see that the consumer is constantly applying for more Loans / Credit Card – 3 in the year 2006, 2 in the year 2007, 4 in the year 2008, 2 in the year 2009 and 2 more in the year 2011. This Kind of Hungry behavior Negatively affects your credit score.
He was DENIED in 2009 and thus he waited to improve over 2010 and once again started applying in 2011, in vain.

Note that the CIBIL score keeps on changing every time the information on your credit report changes.

Data earlier had a lot of inconsistencies, duplication etc which has now been cleansed by CIBIL. CIBIL has also pushed banks to give better quality and consistent data. Data quality has improved considerably with some public sector banks having moved from quarterly submission to monthly submission.