Factors Affecting Your CIBIL Score

Your CIBIL score depends on repayment history, credit utilisation, and credit mix and related factors. Knowing these can help improve approvals and secure financial opportunities.

Here are the factors that affect credit score can help you identify what may be lowering your number and take steps to improve it.

• Length of Credit Record

The age of your credit record is among the factors that determine your credit score and your financial health. 

It essentially means that you have been in the credit system for a significant period. It allows the lender to evaluate your credit management skills. If you do not have an existing credit history, lenders will find it hard to judge your reliability with repayments and steer away from lending funds. 

While it may not be the single largest factor, the overall length of your credit history can still significantly influence your score over time. A well-maintained, older account continues to add value to your score for as long as it remains active.

How to Avoid the Negative Impact

• Unless absolutely necessary, avoid closing your longest-standing credit accounts

• Always co-sign only when you are confident in the borrower’s repayment discipline

• Open new accounts only when you need them

   

• Credit Repayment History

Factors that affect your credit score include your ability to make repayments. It is an important component when evaluating your credit score. The repayment record reflects your ability to meet your financial obligations through timely credit and EMI payments. 

When you default on any credit card dues or do not make your loan repayment on time, it harms your credit health. It can lead to a drop in your credit score. 

Negative information, such as defaults, can remain on your credit report for up to 7 years. This can make it hard to access new credit in the future. 

How to Avoid the Negative Impact

• Use reminders or set up automatic payments to avoid missing due dates

• Ensure you can cover EMIs and credit card bills before taking on new credit

• If you face financial stress, inform your issuer to negotiate repayment options

• Regularly check your credit report to track repayment records and identify errors

   

• Credit Utilisation Ratio

The credit utilisation ratio reflects your hunger for credit. It is the ratio of the credit you use to the total amount of credit limit available against your account. It is a substantial factor that can be responsible for around 30% of your overall credit score calculation.

When you exceed the utilisation ratio, credit bureaus will see your profile as a risky borrower. It essentially increases the probability of you defaulting on loan repayments. 

How to Avoid the Negative Impact

• As a rule of thumb, it is important to limit your credit utilisation to up to 30% of the credit limit offered to you

• Request your lender to increase your credit limit

• When managing multiple cards, distribute your spending across them

   

• Credit Mix

The factors affecting CIBIL score include the credit mix in your financial portfolio. A portfolio essentially includes the number of secured and unsecured credit accounts in your name. As the name suggests, a good credit mix is crucial and impacts your credit score.

It is not as significant as the other factors, as this only impacts around 10% of your FICO score. It still leaves a positive impact as managing a mix of loan EMIs and credit cards without defaults proves your debt responsibility.

How to Avoid the Negative Impact

• Have at least one revolving credit account, like a credit card

• Have at least one instalment credit account, like a personal loan, mortgage, or auto loan

• Keep your credit card utilisation below 30%

   

• Not Making Repayments Responsibly

Factors that affect your CIBIL score include the way you manage your repayments. You need to try paying your loans and credit bills on time as per the schedule. 

Even a 30-day delinquency in making a repayment can reduce your score by 100 points. The recovery process of late payment can take 6 months to a year. 

How to Avoid the Negative Impact

• You can set up reminders and alerts to ensure that you make your payments on time

• Set an automatic payment facility

• Contact your lender to adjust your payment schedule

   

• Outstanding Debt

Outstanding debt can significantly impact your credit report. Records of unpaid debt can heavily influence your score for the worse. 

About 30% of your credit score depends on your total debt and outstanding amounts. Even one overdue payment beyond 30 days or a single default can reduce your credit score, and the statement will stay for 7 years. It will take 6-12 months to recover from it. 

How to Avoid the Negative Impact

• You need to make sure that you repay big and small payments at the earliest

• You need to make sure that you immediately clear outstanding debt reflected in your credit report

• Pay at least the minimum due to reflect on-time payment

   

• Not Paying More than the Minimum Amount Due

If you continue to pay only the minimum amount due on your principal each month, your debt trap increases. It also leads to an increase in compounding interest. This interest can pile up quickly, making repayments more difficult.

For example, imagine you have a credit card balance of ₹10,000 at an annual interest rate of 15%. If you pay only the minimum due of ₹500 each month, it could take several years to repay the debt. By the end, you may end up paying almost as much in interest as the original balance.

How to Avoid the Negative Impact

• It is essential to pay your credit card bills on time and in full

• If paying the full amount is not possible, then try to pay more than the minimum amount to reduce the overall due

   

• Applying for Multiple Credit Products

Each time you apply for a credit product, such as a loan or credit card, the lender verifies your credit report. This action is also known as a hard inquiry. When you send out multiple applications, there are multiple hard enquiries recorded against your account. 

The score reduction is not prominent. For example, 5 hard inquiries within a month can reduce around 25 points. The record will stay in your credit report for two years, and the influence will stay for one year. It also exhibits your hunger for credit. 

How to Avoid the Negative Impact

• Try to take some time off (3 to 6 months) before you apply for the next credit product

• Research the eligibility criteria before applying to avoid rejection

• Monitor your credit report

   

• Errors in the CIBIL Report

Errors in your CIBIL report are a common occurrence. They can be incorrect personal information or wrong balance inputs, which can sometimes be a result of fraudulent loans in your name. 

For example, duplicate loans, incorrect owners, or wrong inputs can lower your score by 50 to 100 points. Based on recent RBI guidelines, it will take 15 days to update your score after the credit bureaus resolve your complaint. 

How to Avoid the Negative Impact

• Try to keep track of your credit history to quickly rectify errors

• Raise disputes at the official website

• Provide supporting documents to quicken the process

   

• Closing a Credit Card

Closing a credit card can negatively impact your credit score. It can increase your credit utilisation ratio, reduce your available credit, and shorten your credit history. It may also lower the diversity of your credit accounts, which lenders assess when determining your financial responsibility.

Your credit score may drop immediately after you close a credit card, and it will stay for a couple of months. 

How to Avoid the Negative Impact

• You can improve it within a few months by paying your bills on time. 

• If you close an account and avoid taking new debt, your score will rise again over time

   

• Co-signing a Loan

Co-signing does not act as a separate scoring factor, but it affects major elements such as repayment history, debt levels, and credit utilisation. Any delay or default by the co-signer will appear on your report in the same way it does on theirs.

A default by your co-signer on the loan can negatively impact your credit score and will appear on your credit report. 

How to Avoid the Negative Impact

• Monitor payments regularly to ensure the primary borrower is making timely payments

• Communicate with the borrower beforehand and have a clear repayment plan

• Be prepared to make payments yourself if the co-signer fails to do so

   

• Loan Settlement

Settling a loan significantly impacts your CIBIL score. It indicates your inability to repay the full amount, leading the lender to accept a reduced sum as full payment.

When lenders mark a loan as ‘settled,’ they record that you did not repay the full amount. This can lower your credit score by 75 to 150 points. The ‘settled’ status stays on your report for up to 7 years, even if your score improves later. 

How to Avoid the Negative Impact

• Ask your lender to extend tenure or reduce EMI

• Request lower interest or temporary waivers if needed

Many people assume that every financial activity directly affects their CIBIL score, but it is not true. Several factors are misunderstood, while in reality, they have no impact. Below are the key points explained:  

• Using a Debit Card for Payments

CIBIL score only considers credit transactions, not debit card usage. You can make unlimited transactions using your debit card without worrying about any effect on your CIBIL score. It only reflects credit management and repayment behaviour. 

• Decrease in Earnings

Your earnings or income level do not impact your CIBIL score. The score represents how well you manage credit and debt repayment. Even with a lower income, timely repayment ensures your score remains unaffected. 

• Marriage

Getting married does not change your CIBIL score. Both partners continue to have separate credit reports, regardless of their spouse’s score. It only gets affected if couples make joint purchases on credit and fail to repay on time. 

• High Interest Rates

High interest rates on loans or savings accounts do not influence your CIBIL score. The score only reflects repayment history and credit management ability, not the interest charged or earned. 

• Seeking Credit Counselling

Consulting financial experts or attending credit counselling sessions does not affect your score. These sessions are not recorded in your credit report, so you can take professional advice stress-free. 

• Denied Credit Application

Rejection of a credit or loan application does not reduce your CIBIL score, as it is not recorded in your report. However, applying repeatedly for credit after rejection may portray you as credit-dependent. This could affect lender perception, and not your score directly. 

A low CIBIL score can create multiple roadblocks in your financial journey. From higher borrowing costs to limited opportunities, it impacts more than loan approvals. Here is how:

• Risk for Lenders: Banks and financial institutions may reject your loan or credit card applications. It can push you towards costlier alternatives like payday loans. 

• Higher Loan Costs: With a poor score, lenders charge higher interest rates, increasing your monthly EMIs and repayment obligations. 

• Increased Insurance Premiums: Many insurers use credit-based scoring for insurance. It means a low score may prevent you from getting the lowest premium rates. 

• Career Limitations: Some employers check credit history when hiring for roles with financial responsibility. A poor score could reduce your chances of securing a job. 

• Rental Difficulties: Some landlords may deny applications or ask for higher deposits if your score is below the standard requirement. 

• Utility and Internet Challenges: Utility companies may demand security deposits or co-signers before providing services like electricity or internet. 

• Fewer Credit Card Rewards: High-reward credit cards require excellent scores. A low score means limited card options and fewer cashback or perks. 

• Slower Wealth Building: Paying high interest on loans reduces savings and investments, delaying long-term goals like retirement. 

• Limited Finance Options: Credit access for housing, vehicles, or high-value purchases can become restricted, requiring stricter terms. 

• Employment and Business Impact: Low scores may affect job opportunities in finance-related fields and reduce trust when seeking business loans or partnerships. 

Your CIBIL score depends on how responsibly you manage your credit. For this reason, issuers rely on the scores as an indicator. With a good credit score, you can: 

• Increases Loan Eligibility

A good CIBIL score improves your loan eligibility chances. An exceptional score suggests that you are a responsible borrower who is disciplined with finances. Lenders prefer individuals who manage their debt responsibly, as they are more likely to present the best credit card and loan offers. 

• Low Rate of Interest

The most notable benefit of having a high CIBIL score is that lenders offer you the best rate of interest on your loans. Having a good score also gives you an upper hand when negotiating the rate of interest levied on credit products. 

• Rewarding Credit Cards

A good CIBIL score will help you get the best credit cards with the most lucrative benefits. Lenders are likely to offer you high-value credit cards when your score is 700 or more.

• Future Proof Your Finances

Irrespective of whether you plan to apply for a credit card or a loan, you need to maintain a good CIBIL score. A high score will be an asset in the future whenever you plan to apply for a home loan, personal loan, or even a credit card. Always prioritise a good credit history.

As per the updated regulations by the Reserve Bank of India (RBI) on 1 January 2025, your credit score will be updated every 15 days.

Your CIBIL score update usually takes 30-45 days, but this has recently been updated for more transparency. Banks and other lenders will share your credit information with credit bureaus on the 15th and the last day of each month. 

However, you can try checking your CIBIL score at least once every few months to stay aware of your finances. Regular monitoring helps you track the impact of your repayments, detect errors, and take corrective steps if your score drops. Checking your score often before applying for a loan or credit card is also helpful.