Have you ever applied for a loan and wondered why you got a higher interest rate? It becomes doubly confusing when someone you know receives a lower interest rate from the same financial institution. It makes you wonder, doesn’t it, if a deeper conspiracy is at play or if your luck is just that bad.
Fortunately, none of this. It simply means that you didn’t possess a good CIBIL score or credit score at the time of your application. It’s not your fault, either. Surprisingly, many people are not aware of this critical metric. The good news is once you understand it, you hold the key to improving your credit score and all the benefits that come with it.
Are you wondering where to start? Start right here with this article, which covers the CIBIL score basics and also provides tips on achieving and maintaining a good CIBIL score.
What is the CIBIL Score?
Simply put, your CIBIL score is a quantitative measure of your creditworthiness. It is a three-digit summary (300-900) that captures your credit history and gives prospective lenders an indication of your credit risk, i.e., whether you are more or less likely to default on your loans. The higher your CIBIL score, the higher your creditworthiness. For example, for a lender, someone with a 300 CIBIL score is a credit risk compared to someone with a 777 CIBIL score.
CIBIL stands for Credit Information Bureau India Limited. It is one of four credit information companies with an operating license from the Reserve Bank of India. The other three are Equifax, Experian and Highmark. However, CIBIL is the most well-known and widely used among these four.
What Factors Affect the CIBIL Score?
So, what factors decide whether you get a high or a low CIBIL score? Let’s take a look:
1. Payment history
The most crucial factor that impacts your CIBIL score is whether you pay your bills (loan EMIs and credit card bills) on time. The weightage of your payment history in your CIBIL score is around 35%. If you delay your bill payments by a month, your credit score can drop by 100 points.
2. Credit usage
Credit usage contributes 30% to the CIBIL score. It refers to the percentage of the maximum credit limit utilised. For example, consider that you have a credit card with a limit of INR 1 Lakh and use Rs. 60000, which gives you a credit usage of 60%. Credit usage of more than 30% negatively impacts the CIBIL score.
3. Length of credit history
This factor contributes around 15% to your credit score. Also known as credit age, the length of credit history determines how long you have held credit accounts (loans or credit cards). Further, the average age is used to calculate the CIBIL score if you have multiple credit accounts. Hence, opening a new credit account can lower the credit age and the CIBIL score.
4. Credit mix
Credit mix contributes around 10% to the final CIBIL score. It determines the variability in your credit account, meaning what different types of credit accounts you hold, such as credit cards, mortgage loans, unsecured loans, etc. A diverse credit portfolio positively impacts your CIBIL score as it displays your ability to manage various kinds of debt over time.
5. New credit
Opening a new credit account contributes around 10% to the CIBIL score. However, it is a double-edged sword, as it also lowers the score in the short term. Maintaining low credit usage on a new account can boost your CIBIL score over time.
Why is a Good CIBIL Score Important?
The benefits of a high CIBIL score include:
1. Loan approval: A high CIBIL score increases your chances of getting loan approval and even pre-approval.
2. Lower Interest Rates: A good CIBIL score also ensures that you get a favourable interest rate, significantly reducing your loan repayment burden.
3. High credit limits: A high CIBIL score also makes you eligible for obtaining a higher loan amount. This is because a high credit score signals to lenders that you’re a safe bet, and hence, they can trust you with a higher loan amount.
Is a 777 Credit Score Good?
Here is a table of various credit scores and what it says about your creditworthiness to lenders.
Credit Score Range
Creditworthiness
300-625
Poor
625-750
Fair
750-800
Very good
800-900
Excellent
According to this table, 777 CIBIL score is considered a very good score, signalling a solid credit history and trustworthiness to lenders. However, this score falls short of an excellent credit score. Let’s discuss how you can go from a very good CIBIL score to an excellent one next.
How to Increase CIBIL Score 777?
Follow these simple steps to increase your 777 CIBIL score effectively:
1. Timely payment of bills
Your credit score increases if you pay your credit bills and loan EMIs on time. Additionally, even a short delay in bill payment can negatively affect your score.
2. Limiting credit utilization
Keeping credit usage below 30% of the maximum credit limit can boost your CIBIL score.
3. Building a credit mix
Having a diverse debt portfolio reflects favourably on the credit score. However, note that if you don’t have diverse debt, you should not consider acquiring it just for a good CIBIL score.
4. Limiting new credit applications
Do not apply for multiple credit accounts within a short span, as it can lower your CIBIL score.
Wrapping Up
We hope that this article answers all your pertinent CIBIL score questions such as what it is, how it is calculated, and credit score of 777 what does it mean. A high CIBIL score signals your creditworthiness to lenders and makes the process of obtaining and repaying loans easier. That being said, the CIBIL score is not written in stone and can be improved by following the simple steps given in the article.
It’s essential to know your CIBIL score first to manage it properly. Reliable CIBIL score calculators are hard to come by. Tata Capital, a leading financial institution with an illustrious history of serving millions of customers, provides one such credit score calculator. What are you waiting for? Visit the Tata Capital website and calculate your CIBIL score now!
24 January 2025
6 mins read
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