How is the Credit Score Calculated in India?


  • Wondering how the credit score is calculated by credit bureaus in India?
  • Check here the credit parameters that go on to decide your credit score!

Isn’t it amazing to know how credit bureaus assign you a credit score anywhere from 300 to 900? What are all parameters they use to calculate credit scores of individuals in India? Let us tell you that the parameters include the repayment history, the number of credit accounts, the amount of debt lying over your head to get rid of, etc. But, how much weightage do these parameters carry and how should you go about each of them to ensure your credit score is maintained right throughout? Well, we’ll detail you all so that you can put your credit history on the right track. So, read on!

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Parameters That Credit Bureaus Use to Calculate Your Credit Score

There are predominantly four credit bureaus – TransUnion CIBIL, Experian, Equifax and CRIF High Mark – operating in India. These bureaus use their algorithms based on the following credit aspects to calculate your credit score in India.

Credit AspectsWeightage
Repayment history35%
Amount owed by borrowers30%
Number of years servicing the debt15%
Number and amount of recent loans availed or applied for10%
Credit mix10%

Let’s read more about these parameters.

Repayment History – It contains a weightage of more than one-third of your credit score and includes everything from the payment dates, instances of payment delays or defaults, and debt settlement if exercised. The timely payment track of loan EMIs or credit card dues for long could so easily take your score to the highs. Payment delays for not more than 30 days will not have any impact on your credit score. Because, by that time, the lender won’t have reported it to the credit bureau it has tied up with. If the delay stretches past 30 days, the credit score will come down.

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Ideally, one should spend in a way that he/she pays his/her loan EMIs of credit card dues on time. However, due to the unpredictable nature of life, there could be an odd delay, but you better not get overly concerned. Instead, pull some out of your savings to pay off your dues within 30 days of the scheduled payment date. But don’t make it a habit as that could be viewed as a deliberate attempt from you by the algorithms that bureaus calculate credit scores in India.

Debt settlement is an option that one uses to reduce the debt in a legal agreement with the lender. If you have done it in the past, you might have got away by paying a reduced debt amount which otherwise would have been massive. But doing so might reflect badly on your credit history, if not your credit score. This might shut the door for any unsecured credits such as personal loans and credit cards. However, the option of secured loans or secured credit cards is always there with you. While secured loans can be granted against securities or collaterals such as fixed deposits, public provident fund, national savings certificate, etc, secured credit cards are given against fixed deposits only. Lenders don’t feel much of a risk as they could recover the money by seizing your security/collateral in case you default.

Amount Owed by Borrowers – This is a very intriguing and delicate concept to understand. As a borrower, you could owe to lenders in the form of several credits. The bureaus will add all the loan amounts to ascertain your credit score. When it comes to credit cards, the concept of ‘Amount Owed’ will vary. With a credit card, you are not deemed to be on credit if you pay all your dues on time. Only when you delay or pay the due partially do you go into the debt cycle with interest and late payment charges levied on your outstanding balance. If the amount owed is too high and you’re committing long payment delays or defaults, it can impact your credit score negatively.

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Length of Credit – One may not want to service the debt for long, but there are long-term loans such as home loans that keep adding to your credit history. But that will also end sometime. Loan records remain in your credit history for at least 7 years from their last repayment date. With credit cards, though, the credit history can be as long as your life. And there are people with multiple credit cards (both old and new ones). Old credit card accounts, if maintained well with a solid payment record, can add so much to your credit score. There may come a time when you wish to close some of your credit card accounts. If you do come to that point, ensure you close the newest accounts so that your credit score doesn’t take a bite. However, if you close the old accounts, it might lower your credit score.

Credit Mix – One should have an ideal mix of secured and unsecured credits to build a strong credit history. Too much of unsecured credit lines can become a bone of contention for you on committing late payments. As they are not backed by securities or collaterals, a poor repayment track of them can dent your credit history.

Recent Loans Availed or Applied for – This can also have a bearing on your credit score. The bureau will check the repayment track of the loans that got disbursed to you recently. There could be some loans you might have applied for without any success, which means the applications that have got rejected. The rejection of recent applications does impact your credit score negatively. It’s because of the hard credit enquiries that lenders make. And when you make multiple applications at different lenders, chances of rejections only mount. This is because all these lenders will pull your credit reports from the bureaus at the same time. These hard credit enquiries may prompt bureaus to lower your score by creating an impression that you are credit-hungry. Ensure you don’t apply everywhere at the same time if you care for your credit score.

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