Common misconceptions about CIBIL score calculation

CIBIL or the Credit Information Bureau of India keeps a record of an individual’s credit related activities with all the financial institutions, lenders and banks (including outstanding balances, credit limits, EMI, credit card payments). This record gives an insight into a person’s credit usage patterns. CIBIL generates a three digit number called a CIBIL Score that summarises the credit information and aids in the evaluation of borrowers on a standard scale. Banks check the credit score and credit report to make their credit approval decisions.

As the significance of maintaining a good CIBIL Score is increasing, rampant myths have cropped up which have left people confused. This article attempts to debunk some of the widely spread misconceptions surrounding this financial tool.

Myth #1: Enquiring about your own CIBIL score will bring it down.

When you check your own credit report or score, it is considered a soft enquiry and is not taken into consideration while calculation the score. On the other hand when a lender checks on it for the purpose of evaluating your credibility it is a hard enquiry that gets recorded on the report and impacts the CIBIL score calculation. A series of loan applications in quick succession will generate multiple hard enquiries and have a negative bearing on the score. It is actually a good financial practice to keep a regular check on your score to track your credit health. You can check your score from the bureau by paying a nominal fee.

Myth #2: Close your credit cards to improve your score.

This is the most dangerous myth hovering around the CIBIL Score. Contrary to this belief, closing credit cards will actually bring the score down. When you forgo a card, your total available credit limit declines, and the credit utilization percentage increases. CIBIL score calculation largely takes into account the credit utilization ratio. A high ratio will push your score down.

Length of the credit history is another significant factor that affects CIBIL score calculation. So if you have old credit cards, in which you have displayed good credit behaviour, do not bother closing them. Firstly, a history of payments within the due dates on those cards will positively affect your score. Secondly, they add to the available credit limit you enjoy, and help in reducing the utilization ratio. Hence it makes sense to hold on to such cards, even if you do not use them.

Myth #3: Prefer cash over credit to raise your score.

Indians have grown up with the belief that borrowing money is a bad thing. On those lines they think that if they make cash payments and avoid credit completely it will keep their CIBIL Score in good shape. But contrary to this perception cash transactions do not have any bearing on the CIBIL score calculation. The one and only thing that affects the score is the credit history. If you do not use your credit line you cannot build your credit history and bureaus will not assign you any score at all. You will find it difficult to get loans sanctioned in case you need them for emergencies. The trick is to avail loans and make purchases with your credit cards, and make timely repayments. Such credit behaviour will be rewarded with an excellent credit score.

Myth #4: A bad credit score cannot be restored.

A credit score is a reflection of one’s financial behaviour at a particular point in time. In case you have a bad credit score, it may lessen your chances of loan approval in the near future, but it isn’t a closed chapter. With judicious planning you can get your financial life back on track. Apart from making on-time payments you can take help of professional help from credit management companies who will help you draw out a plan to restore your credit records.

Myth #5: CIBIL score calculation takes into account factors like Education level, Occupation, income, bank balance, place of living and marital status.

None of these factors play any role in calculating your CIBIL score. In fact CIBIL does not even have access to such information. A credit score only reflects how responsibly you handle your credit. It only depends on the credit information like the number of loans taken, total available credit limit, outstanding balances and credit repayment patterns.

Myth # 6: Being a guarantor does not affect credit score calculation.

You will not lose points on the credit score for acting as a guarantor for a loan taken by your friend. But if your friend fails to make timely payments of his debts the onus will lie on you. If you fail to pay the amount your credit score may plummet.

Credit scores affect your financial life significantly. Misconceptions and erroneous understanding regarding CIBIL Score calculation can lead to serious repercussions. Hence it is good to know what affects the score and what does not.

Understand the loan underwriting process

When you apply for a loan, as part of the process the information given by you is scrutinised and analysed in depth by the lender’s underwriting team before a decision is taken as to whether to approve or decline the said loan application.

What is loan underwriting?

Loan underwriting is the process wherein prior to taking a decision of whether to approve or decline a loan application, the lender (that is a bank or other financial institution) verifies the information provided by the applicant and confirms that the requirements as laid down by the lender for a particular loan facility are met.

Loan verification includes taking into account items such as employment or business history, salary or income and other financial statements, and the borrower’s credit history as detailed in the credit information report. Finally, it also takes into account the underwriter’s evaluation of the borrower’s credit needs and their intention as well ability to repay a loan they avail of.

The length of the underwriting process depends upon factors such as the completeness and complexity of the loan application received. It is also influenced by factors internal to the lender such as the underwriter’s experience as well as how busy the lender may be at the time. For example, if you apply for an education loan just before the start of a programme, it is likely that a lender already has their hands full with similar applications owing to the peak enrolment season and hence the time taken to process the application may increase.

What are the factors considered while underwriting loans?

Sound underwriting comprises of many aspects – judgement, experience and the underwriter’s ‘gut feeling’. This makes the process both subjective as well as objective. It is subjective to the extent that the underwriter forms an option about the borrower and their repayment capacity basis relevant opinions or impressions formed while reviewing the application. The objective view comes from understanding and analysing in depth the verifiable facts (such as income, other loan outstanding, past repayment track record) available before making the loan decision.

Let’s then take a quick look at the credit decision process.

Calculation of monthly expenditure: When a lender reviews your loan application they take into account the monthly outflow that you have, factoring in any obligations you may have, including monthly household expenses etc.

Existing debt repayment: When you have an existing loan the lender will take those into account as well, to determine whether it is possible for you to take on a further debt burden.

Monthly income: Not only is your cash outflow taken into account, but also what it is you earn each month, be it by way of a salary or a business income. This amount can also include any interest income (from investments such as fixed deposits) or rental income (from a property you are renting out), as it is an amount that occurs with regular frequency and can be relied upon when calculating the amount of debt you can undertake.

Debt to income ratio: What an underwriter does when assessing your loan application also includes determining just how much your current debt (or outstanding) is in comparison to your income. When your income holds its own against the outflow, the outcome is considered to be favourable and increases your chances of getting a loan. This is because you come across as someone who can handle debt well.

Review of credit profile: An important part of the process is scrutinising the applicant’s credit profile, i.e. pulling a copy of the credit report from a credit bureau to estimate the individual’s creditworthiness. This report is carefully scanned to check for loan defaults, skipped payments, account write-offs etc.

Keeping all the above factors in mind, the underwriter will review the applicant’s profile in entirety before making a decision either way. This in-depth analysis helps them to understand the risk involved in lending to a particular customer.

Loan underwriting and CIBIL scores

If your CIBIL score is good, the options available to you are a lot more, and most banks and financial institutions will be willing to lend you the loan amount you are looking for, whether to purchase a house or a car.

But do keep in mind that a credit score is one of the parameters that a lender uses while evaluating a loan application and is not the sole factor taken into account by any means. It is primarily a guideline and not used in isolation to other factors. If your credit score is low, it is not a given that a lender will reject your loan application outright; they are likely to weigh the other parameters as well, before taking a decision either way. Of course, the terms at which you may be offered the loan could likely be less competitive especially with regards to the interest rate than they would be otherwise, but a low score definitely is not the end of the road.

In conclusion

The loan underwriting process is a judgement call and underwriters are also human beings, willing to take a risk on those they believe will turn out to be ‘good’ borrowers! It is advised to check your CIBIL report before applying for the loan.

CIBIL is keeping an eye right from your first credit card

Have you ever wondered as to who keeps a watch on your financial dealings when it comes to having availed of credit, be it a loan or a credit card?  Do you have a credit bureau watching you, or is it the lender or both? Here is a brief insight into the world of credit health.

Tell me more about CIBIL and credit bureaus

CIBIL is India’s oldest credit information company, or credit bureau, that has been licensed to operate by the Reserve Bank of India (RBI). CIBIL was incorporated in 2001 and has been providing credit bureau services since 2003 for banks in India. A credit bureau generates credit information reports that provide a wealth of information regarding an individual’s credit history, both past as well as ongoing. These credit reports are summarised by credit scores, which typically range between 300 and 900. A high credit score indicates better repayment behaviour and satisfactory credit hunger of the consumer.

In addition to CIBIL, there are three more credit bureaus, namely Equifax Credit Information Services, Experian Credit Information Company of India and CRIF High Mark Credit Information Services. These bureaus were granted licenses in 2010 and since then have been working closely with banks and financial institutions to fill in gaps that were present in the market at the time when there was only one credit bureau.

These bureaus also have expanded the data coverage and introduced specialised segments such as microfinance (MFI) loans. This data is also now available with the credit bureaus in addition to the commercial loans and consumer loans data traditionally available with the bureaus. There is a mortgage check repository also and a separate database for fraud checks; bureaus have also been working to get more and more data into their databases and like in some other countries with time telecom and insurance data may also come to credit bureaus in India. This will greatly help a lender establish whether they want to extend a fresh line of credit or not. For example, if a borrower features in a fraud report, the next lender they approach for credit of any kind is likely to decline the application.

Credit bureaus and the RBI

As per the Credit Information Companies Regulation Act, 2005 (CICRA) the RBI is the regulator for credit bureaus and over the years has brought in several robust guidelines and policies to monitor bureaus. As per the latest guidelines, lenders are required to submit data to all bureaus. This means that every bank or financial institution is required to become a member with each of the bureaus present today. This is a significant move to ensure that credit history and repayment behaviour of all types of borrowing is available with all the bureaus.

Apart from bureau data, the RBI also requires credit bureaus to share a list of wilful defaulters, and this data is published on the RBI website.

What does a credit bureau check?

A credit bureau maintains the credit history of a borrower, detailing in its reports the repayment track record of a borrower. When you approach a lender for a loan or apply for a credit card, the first thing the lender does it to pull a copy of your credit report, which helps them gauge both the willingness and ability of a borrower to repay any outstanding debt.

Bureaus however do not make any changes or modify this data either in entirety or in part. They merely put together the data received from their member institutions, i.e. banks and other financial institutions. Essentially, bureaus don’t track individuals they only maintain and organise the data submitted by lending institutions.

Hence, from the time that you obtain your first credit card and right up to your existing home loan, for example, the lender(s) you have borrowed from will be the entities that monitor you closely, and not CIBIL or any other credit bureau. This monitoring is translated into your credit health, which needs to be maintained as you would your physical well being.

How does one track the credit score?

The first thing to do is to call for a copy of your credit report from either one or all bureaus. Once you receive the same do go through it at length and also check the score. If you think the score is not on par or you need help to improve credit score, consider availing of the services of a credit health management company. In tandem with trained credit counsellors you will be able to restore your credit score and even enhance it over time.

Therefore be it your first credit card or current home loan, make sure you maintain credit health.


Can anyone check my CIBIL report without my permission?

A credit report is an all-important font of information that all banks and financial institutions rely on today. As part of the loan approval process, a lender first checks the credit report and then determines whether a loan is to be sanctioned or declined. The better your report reads, better are the chances of your loan application going through.

What is a CIBIL report?

CIBIL is India’s oldest credit bureau, of the four operating today, the others being Equifax, Experian and CRIF High Mark. Hence very often, a credit report is referred to colloquially as a CIBIL report.

However, credit reports are provided by all the above mentioned bureaus.

What kind of enquiry is made against a credit report?

There are two types of ‘hits’ or enquiries that are made against your credit report:

  • Soft enquiry, wherein a lender (or credit card company) requests for a copy of your credit report in order to offer you an enhanced credit limit. Typically, the bank or financial institution does not request for your consent when making this enquiry.
  • Hard enquiry, which is done by a lender when you apply for a loan or credit card. Again, most lenders do not require your consent to pull this report, but some may do so. In which case, it would be mentioned as part of the loan application terms and conditions.

If you realise that there are hard enquiries made against your credit report, it would be wise to bring them to the attention of the concerned credit bureau. There is a possibility that these are a result of your credit report being misused, for example in case of an identity theft wherein another person is attempting to use your personal information to get a loan or credit card. Remember, each hard hit pulls down your credit score, so this should not be taken lightly.

Where are these enquiries used?

Globally, credit reports are used in businesses other than financial services for loans and credit card, such as insurance companies and telecom operators.

In India however, the usage of credit reports is mainly restricted to the financial services sector, as an entry-level check when you apply for a fresh line of credit.

Who can access a credit report?

In the United States, for example, the Fair Credit Reporting Act (FCRA) determines who can get access to an individual’s credit report. Some of the reasons a report can be made available include:

  • A bank or financial institution, to process your loan or credit card application
  • The individual agrees (in writing) to share their credit report
  • On the behest of a court order or subpoena
  • For prospective employment, by an employer (with the candidate’s prior permission)
  • With regards to a business transaction initiated by the individual
  • When utility companies process your application to apply for services, such as telecom
  • When a landlord is appraising your request to rent their property
  • When an insurance company is underwriting your policy

If an individual reports unauthorised use of their credit report, the FCRA will take up the enquiry. For example, an insurance company can view your credit report at the time of underwriting, but not if you subsequently file a claim. It caps actual damages at US$ 1,000 if there is an error owing to oversight, but consumers can also sue for punitive damages, lawyer’s fees and associated court costs.

In India, as per the Credit Information Companies (Regulation) Act, 2005 (CIC Act), the borrower’s consent is not required to (a) collect data from lenders and (b) furnish this information to specified users of credit information by credit information companies. This ‘consent clause’ has been made redundant as per a Reserve Bank of India (RBI) notification dated July 01, 2013. Hence, it is likely that you would know when an enquiry has been made only when you request for a copy of the credit report yourself.

It is important to note that not just about ‘anyone’ can get access to your credit report without your permission. A prospective employer for instance cannot obtain a copy of your report unless you agree to share it with them. Simply put, as on date, no individual or corporate body/ organisation can check your CIBIL report without your permission, unless you have applied for a line of credit as mentioned above.

How can you safeguard yourself?

It is always prudent to keep track of your credit report at regular intervals by obtaining a copy from any or all of the credit bureaus. While the score itself may differ slightly across bureaus, you would be able to tell if any unusual activity is reported. In such an event, contact the concerned bureau(s) immediately to have the data rectified.

Your credit health is the key to your financial future, and the credit report is an extremely crucial factor in the process. Hence, it is never too late to begin monitoring your credit report and safeguarding your financial future.

Effect of Marriage on Credit Score

When they made the movie “Shaadi ke Side Effects” or Side Effects of Marriage as translated in English they forgot to talk about effect of matrimony on Credit Score!! No worries we will remedy that. First questions first “does marriage have any effects on your credit score at all”.

Does Marriage Affect the Credit Scores of Both Partners?

The short answer is “no” at least directly. When two people tie the knot their credit scores do not merge. The credit scores are for individuals and reflect the individual credit history and continue to so even after two people officially decide to live together. While after marriage you may choose to have a joint bank account there is no joint credit score.

So even after you get married the debt and credit cards in your name get treated just the way they were before you get married. So if you default on your payments only your credit score is adversely affected and the converse is also true.

Similarly if you apply for a loan in your name only your credit history will be evaluated and not that of your spouse. Any digression only in your credit history will be considered and not his/hers. A good credit score for your spouse cannot get you any brownie points. However if you apply for a joint loan then both your credit histories will be considered individually and the decision will be made accordingly.

Some Special Tips for Women:

Women need to take care of some aspects especially when they get married. Even if you take your husband’s surname post marriage it will have no bearing whatsoever on your credit score; the credit history in your maiden name does not get erased. So you can continue with your credit trail whether god or bad.

You need to inform the concerned parties including banks and creditors about the name change so that changes can be made at appropriated places. The history gets carried forward with the new or the changed name/surname. There are others aspects like the date of birth etc that establish the identity of the person so there is no need to worry on this aspect i.e name/surname change post marriage.

Now the next aspect I want to touch upon is that women should maintain their individual credit cards and bank accounts and continue to maintain them irrespective of the fact whether you are working or not. Even if you start a joint account or take an add-on credit card do continue with at least one card and one account in your individual name whether maiden or otherwise. An old account is much more helpful when it comes to establishing the credit habits of an individual.

Your credit history could come in handy in case due to some exigency like financial hardship, death of spouse or bad credit score of spouse you need to use your credit score for applying for a loan. In case years down the line you want to start afresh and have a credit history it might become difficult and cumbersome for you to get a credit rating. Also at least a six month trail is required for a credit rating.


In case of a loan taken in joint name shall impact the score similar to a loan taken in individual name, irrespective of the fact that the person may be second or third joint applicant and repayments are being done from the primary applicant’s account.

Marriage does have some indirect impacts on your credit score. In case either of the partner is not financially disciplined it can affect the family finances and can cause you do default on payments thereby impacting the credit score negatively.

Marriage involves a lot of expenditure (at least in India) whether its pre-marriage preparations or post-marriage shopping and setting up a new house. So it’s important that you plan carefully and don’t overspend or max your credit cards. It’s not a good idea to begin a new life in debt.

A positive outcome of a marriage is two credit scores. So in case one partner has a lower credit score than you always have a choice of using the credit score of the other partner when applying for a loan.

Though marriage does not affect the credit score directly, it does impact your life and lifestyle. With careful planning, you can avoid any pitfalls and make the best of it; financial or otherwise.

How often should you check your credit score?

One may not need the credit or loans at all times, but it is prudent to keep track of your credit score regularly. If you find anything out of the ordinary, it would be wise to report it to the concerned lender immediately, and have it rectified.

As a consumer, you should be aware of your credit history, as any small error can play havoc with your score. Make sure that the information captured in your report is accurate and up-to-date, ideally checking at least once a year.


When should you check your credit score?

There are four credit bureaus in India licensed to operate by the RBI. You can apply for a report to any (or all) of the bureaus, and check the scores across each.

A good strategy is to spread out your report requests throughout the year, instead of getting them from each bureau at the same time. That way, you would be able to keep track of your score year-round.

You may want to check your report additionally if you are planning to avail of a new line of credit – a loan or a credit card – as the score plays a critical role in the approval process. A good score can ensure you get a loan on the best possible interest rates and terms.

Alternately, it would suffice to request for a report from the bureau once a year. Checking your personal credit history as often as you like does not impact your score.

How to get a free credit score?

While the bureaus themselves do not offer a free credit report to consumers, you can log on to, for a free credit score from Equifax, one of the bureaus in the country today.

To summarise, while a free credit report is not available currently, spending a relatively modest sum to know that your financial information is correct is well worth it. Know your credit score and earn yourself some well-deserved peace of mind.

Is it necessary to keep a track on CIBIL report?

Keeping a track on your CIBIL report is as important as keeping a track on your physical health condition. While there are four credit bureaus in India, the CIBIL report is the most widely known. It is an important document about your personal financial history that determine your creditworthiness. While maintaining financial discipline and making all your bill payments and EMI payments before due date is an essential way to maintain a good credit score. You should not just assume that doing so will ensure that your credit score is good. There can be multiple reasons why your credit report may still be having a low score or not creating the amount of positive impact that it should.

It is recommended that you should check your CIBIL report regularly. If you are planning to take a loan or any other credit facility soon, checking your credit bureau report becomes imperative.

Why is it important?

  1. Check for any discrepancies in records:
    First and foremost reason to keep a check on your credit report is to detect any wrong information that has got recorded. For example, a credit card company charged you Rs. 3000 for a service without your consent and received this additional amount on your next bill. You raised a complaint with the customer care and meanwhile your due date is approaching. Not to miss payment, you pay the bill (minus Rs.3000) because this amount is disputed. Later on credit company agrees to cancel the service and cancel the Rs.3000 charges. In this case, you assume everything has gone smoothly. But here’s the catch, on your due date, you paid Rs.3000 less than your due amount. This shows up as a partial payment record in your credit report. A couple of more such incidences and can seriously affect your credit score. Such discrepancies can be settled through the dispute resolution mechanism .

  2. Check that all your open and closed accounts reflected correctly:
    Again sometimes credit companies may not be sincere in reporting a closed account (completed loan payments, closed credit cards etc.) Checking your CIBIL report is necessary to track that your accounts are accurately being reported. Also, always remember to take a closure certificate from bank after you close an account.

  3. Detect any frauds or identity thefts:
    Mr.A was surprised to see a credit card account in his credit report which he was totally unaware of. Over and above, it seems only minimum payment due was being payed to avoid raising an alarm till so long as it was possible. It seems someone had used copies of his personal documents to take a credit card in his name and was happily using it. Such frauds are not very commonly heard off, but they are not rare at all. Many people have been duped of their life’s savings because of such identity thefts. Checking a credit report is one way of ensuring that you detect any such suspicious activity as soon as possible.