CIBIL Score - A Practical Guide

[SSV]

CIBIL Score - A Practical Guide

Discalimer: This is mainly for regular Credt Card users who pay all their dues before due date and wondering why their score is not increasing..
Here we dont discuss the cases where there were defaults and / or delayed payments..that is for another day..​

Ladies and Gentelmen,

Here is the much awaited post on CIBIL Score and how it works and what we should do to improve it over the period of the time..

Here I won't go in detail about how the score is constructed as there were numerous posts on the internet in explaining the CIBIL score in an academic way..
Here we will concentrate more on practical things..

Lets get started..

CIBIL Score's main constituents:

1) Payment History
2) Utilisation
3) Number of Enquiries in the recent past
4) Credit age..
5) Credit Mix

1) Payment History

We should pay all dues before the due date in order to have an excellent score and minimum fainancial burden on us.. This many of us do anyway..

TIP: we should atleast pay Minimum Amount Due( MAD) before the due date atleast - this will safeguard the score,
but will impact us financially if we pay only MAD and leave the rest...

Best practice:
1) Pay MAD immediately after the bill is generated - This will protect the score, in case you failed to pay the full before due date.
2) Pay the full amount due at least 5 days before due date. - ideal case scenario.
3) Pay the full amount even before the bill generations / month end- the best case scenario- will discuss this in detail at the end..

2) Utilisation

There is a notion that if we have <30% overall utilisation then it is good..
Lets dig deep into this..

The prinicple is : the higher the utilisation ratio, the lower the score.. and vice versa ...Period..
So, the aim should be the utilisation ratio should be as minimal as possible. ( it can even go into -ve, this is the best case scenario)..

How this works practically:
It works in range bound basis: like 0 to 10 % , 10 - 20 % and 20 - 30% etc.
Note: these exact range numbers are hypothitical.. trying to explain the logic...
For example: 0- 10% utilisation ratio will have better score than 10- 20% and
10- 20% utilisation ratio will have better score than 20- 30% ratio..

Once it crosses 30% utilisation ratio it will have big negative impact on the score.. hence need to maitain less than 30% ratio to have a decent score.

Tip:
This uitlisation ratio is calculated both on
1) overall basis ( on all accounts together) and
2) Individual account level basis..

Both of the above ratios will have their weightage in the score construction.

Example:
You have 10 accounts with a total of 10 Lakhs sanctioned limit and total utilisation of 2 Lakhs
Here the overall utilisation is: 20%, which is okay as it is under 30%..
But if one of the accounts has 50% utilisation ( ie, one account which has 1L limit and utilsation with 50K).
In this case , score will have big negative impact even though your overall is less than 30%...

BEST practice:

Make sure each and every account utilisation is less than 30% to start with
and as low as possible to have as better score as possible.. ( It can go to negative as well .. this is the best possible scenario)...

3) Number of Enquiries

This is where a lot of people have confusion..

The basic rule:
The longer the credit history , the lesser the impact of number of enquiries on the Credit score...

In practical terms:
Once your credit history crosses the age of 5 years, the no. of enquiries' negative impact diminishes..

Say if you have 6 years of credit history, then 5 or 10 enquireis in the past 1 to 3 months will not have any impact on the score.

If your credit history crosses 10 - 15 years , you can safely forget about the concept of number of enquiries...

TIP:
Even if your credit score is impacted because of no of enquiries, the score will recover pretty fast ie. within 2 to 3 months.
Only people with less than 5 years of credit history should be careful about the no of enquiries..


4) Credit age

The longer the Credit age the better the score and score's stability...
For a person who has a credit age of 15 to 20 years, the fluctuation in his/ her score is very minimal...

Again, after the age of 5 years , the score will get a bit of the boost and started to get stabilised..
Obviously the more older the credit profile the better.
when you are trying to close your oldest credit card account, please check what is the second oldest account's age, if it is more than 5 years, no need to worry..

TIP:
Check score predictor in the offical CIBIL app and predict your score by selecting the oldest card's closure.. this will give a very accurate prediction in my experience.

5) Credit Mix

Obviously, a mix of sceured and unsecured loans is a better indicator rather than having only unsecured loans...

However, what I observed in practice, except for Home loan all other Secured loans have no / minimal postive impact on the score..

Home Loan- will definitely improve your score by around 10 points.
Gold Loan and Loan against FD - have no positive impact on the score in my experience. in fact it had a negative impact as it is carrying some current balances..
Auto Loan - also may not have a positive impact..

Now coming to some other interesting bits:


SSV's Pro Tip:

1) Make current balances <=0 on each and every account as on Reporting Date ..

Maitain 0 or negative current balances on all accounts to get a boost of about 10 points to your score
Then you may ask what is the purpose of having 45 /50 days of free credit period..
Correct. this may not be useful for those who want to utilise full free credit days, but for those who want to boost their credit score for any other purposes temporarily this is one of the great tools which is in our hand..
I will also tell how to get this 0 utlisation along with availing free credit period to some extent for some bank credit cards..

We all know that different banks report balances on different dates.
We classify them as banks reporting balances as on
1) month end
2) bill generation date

The KEY here is current balances as on REPORTING Date ...
This Reproting date can be month end or bill generation date depending upon the bank.

1) For those that report balances as on month end ie.
AXIS, BOB, HDFC, HSBC, IndusInd, IDFC, Kotak, RBL , Stan C, YES ........
For these banks, make sure your due date falls on 1st of every month, so that means, your statement generation datee should be around 14th of every month so that bill DUE date is around 1st or 2nd of the following month...

In this case, you can have your full amount outstanding as on 14 th, but pay the full amount by 30th of every month..
So at the end, your current oustanding balances should <= 0 as on 30th.. this solves the issue.

2) For those banks who report on bill generation date, there is no escape: you have to pay just before bill generation date and make sure bill amount is <= 0,,,


2) HIGH Credit in CIBIL report:

There is one data item called " HIGH credit " in CIBIL report..
what it means : the highest amount used / billed in any credit account during the life time of that account...

This generally doesn't have any direct impact on the credit score except in the cases of charge cards like amex Gold, Platinum cards etc where there is no set sanctioned limit..
This was applicable until recentlty on HDFC cards as well, but HFDC now reports sanctioned limits to credit bureaus..

However, this data item potentially will be useful for lenders to know more about us with regard to
1) Potential high spender
2) giving better credit limits at the time of application..

I am not sure if the Indian lenders are incorporating this in their credit card application evaluation as of now.. I am sure in future they may use this..

How this should work:
Total amount used ie. debited duiring a staetment period should reprorted as HIGH Credit to the bureaus..

Scenario 1:
Take a case of what I generally do:

I have a card with sanctioned limit of 5L and I use it for 2L in one month and pay in full before the bill generation date.
This is how it will be reprted in this case:

Sanctioned Limit: 5L
High Limit : 2L
Current Balance : 0

This stat should WOW a potential lender towards me.. Why?
I am using 40% of sanctioned limit and paying in full back to account before the bill generation.
Means I am a high spender and very obedient in paying back before bill generation date..
and hence they should love to give me their card with generous limits..

Scenario 2:
Take another example of oppostie side:

Sacntioned limit: 5L
High limit :20K
current balance: 20K

In this case, Bank is wasting sanctioned limit on this person, as he is only using 4% of sacntioned limit ..
So , in this case this customer is not a high spender ( hence not much income to the Bank) and there is no point in giving him higher limits as well ..

As per my observation only SBI and Amex is reprortng this HIGH limit correctly in true sense.
(--EDIT: YES bank is also doing the same as per @reach2dpg )
ie.
same example:
spends of 2L , paying full before bill generation:
SBI and AMEX reported
as CL :5L
High Limit 2L and
Curre balance : 0

where as all other banks reported as
CL :5L
High Limit : 0 and
Curr Balance :0..

For other banks to report correct high limit ,we need to have full balance outstanindg as on bill generation date at least for one statement period....

Look at the example of my ICICI account



In the above example, my highest bill oustanding duirng one statement period was 2.15 L out of 7.7L sanctioned amount ..and current balance is Zero..
Means I am a good boy. A high spender who pays bills before bill generation.. Banks would love persons like these...

So, with regard to HIGH limit:
My TIP:

Use your card just once for a very big amount and get it reported as HIGH limit , and from then on-wards use as per your normal usage...


This post became too big..but I wanted to share all my knowledge as far as CIBIL score is concerned..

All the best guys...

Have fun
Enjoy.....

 

[SSV]

yes, that's the posted charges, acc. to amex's terminology.

If that is the case, it is sad..
If you have time, you can raise the issue and they will certainly address it , I believe..

By definition, High Credit means : " the total spends in a given statement period" ..

 

[nkparsana]

Thanks a lot for your detailed explanations and logics about how the CIBIL score & their algo works!

My score right now is 804. I do have paid cibil subscription. Last month it was 795 and as per this community guidance & advice, I paid all of my CC outstanding. I have 17.5+ yrs of credit age and 9 CC (visa rupay amex variants) along with home loan. Before reporting to CIBIL by bank bodies I cleared my outstanding bills and score got increased.

Outstanding bills of all cc got cleared in June month, from July starting, apparently very slowly cibil updated the data like reported dates data from various banks and such details. On 22nd of July month all cc reported date data being updated in cibil, however, score wasn't increased at that time till of 31st July. Finally on Aug 3/4 score increased to 805. On the next day again score got decreased by 1 point but seriously don't know the reason. There's no inquiry, no heavy usage (less than 1% utilisation) and everything paid on time. From 5th till today score is same as 804 and cibil is slowly updating the data from what banks have reported.

When we clear all cc outstanding bills to 0, Cibil takes atleast 1 month and score gets updated in next after month. Per my explanation, in June everything cleared, score wasn't updated in July but after next month in Aug.

Now again if I pay all outstanding cc bills in this aug month, will my score be increased again? (simulator of cibil is not that much helpful as I already did the same in June and other months) So respected members, any advice on my above question? Kindly let me know. Thanks a lot to everyone in advance!

 

[SSV]

Thanks a lot for your detailed explanations and logics about how the CIBIL score & their algo works!

My score right now is 804. I do have paid cibil subscription. Last month it was 795 and as per this community guidance & advice, I paid all of my CC outstanding. I have 17.5+ yrs of credit age and 9 CC (visa rupay amex variants) along with home loan. Before reporting to CIBIL by bank bodies I cleared my outstanding bills and score got increased.

Outstanding bills of all cc got cleared in June month, from July starting, apparently very slowly cibil updated the data like reported dates data from various banks and such details. On 22nd of July month all cc reported date data being updated in cibil, however, score wasn't increased at that time till of 31st July. Finally on Aug 3/4 score increased to 805. On the next day again score got decreased by 1 point but seriously don't know the reason. There's no inquiry, no heavy usage (less than 1% utilisation) and everything paid on time. From 5th till today score is same as 804 and cibil is slowly updating the data from what banks have reported.

When we clear all cc outstanding bills to 0, Cibil takes atleast 1 month and score gets updated in next after month. Per my explanation, in June everything cleared, score wasn't updated in July but after next month in Aug.

Now again if I pay all outstanding cc bills in this aug month, will my score be increased again? (simulator of cibil is not that much helpful as I already did the same in June and other months) So respected members, any advice on my above question? Kindly let me know. Thanks a lot to everyone in advance!

Thank you very much for your appreciation ..
You already got very good score.. dont stress too much..

Try CIBIL similuator and check the opiton of " Clear all dues in all CC accounts" .. whatever it shows there that will be your score once all your CC have 0 or -ve balance..
as you already got just above 800 score.. you are absolutely excellent.. do worry too much.. enjoy life .. have fun ...

Ibn Simulator : choose below option and see if you get any better score.. and this works ..

 

[nkparsana]

Thanks very much @SSV for your prompt response!

I already tried the simulator per what you've highlighted but as I mentioned its not that much useful. In June month also I tried the same and simulator doesn't show my increased score however, after clearing all of the CCs o/s dues, my score has been increased.

I can understand nothing to worry as score is excellent. Although, what I am trying to figure out is there any possibility if I clear all CCs o/s amount to zero gets increased my score again? I'm just curious to know about this. Hope you're getting my point and seeking advice from experts like you guys. Thanks a lot in advance!

 

[drsel]

Thanks very much @SSV for your prompt response!

I already tried the simulator per what you've highlighted but as I mentioned its not that much useful. In June month also I tried the same and simulator doesn't show my increased score however, after clearing all of the CCs o/s dues, my score has been increased.

I can understand nothing to worry as score is excellent. Although, what I am trying to figure out is there any possibility if I clear all CCs o/s amount to zero gets increased my score again? I'm just curious to know about this. Hope you're getting my point and seeking advice from experts like you guys. Thanks a lot in advance!

I keep a small credit balance in all my accounts but still my CIBIL score is not going anywhere

 

[SSV]

already tried the simulator per what you've highlighted but as I mentioned its not that much useful.

What is it predicting? Is it showing any increase / decrease / no difference in the score when you chose the option mentioned in the above screenshot?

 

[nkparsana]

What is it predicting? Is it showing any increase / decrease / no difference in the score when you chose the option mentioned in the above screenshot?

Per your screenshot of simulator, clearing all cc o/s shows me increase of 1 point only. (Please take a note in such same situation when I run in June month, at that time score was not shown as in increased manner, showed me same score as per in June month, BUT I decided to go ahead by my own by paying all cc o/s amounts and in aug month, score increased by 10 points)

 

[SSV]

Per your screenshot of simulator, clearing all cc o/s shows me increase of 1 point only. (Please take a note in such same situation when I run in June month, at that time score was not shown as in increased manner, showed me same score as per in June month, BUT I decided to go ahead by my own by paying all cc o/s amounts and in aug month, score increased by 10 points)

Simulator works perfectly in my case .
When we say all CCs having 0 balance, theybhave to be reported to cibil. By the time you make 0 and by the time all banks report to cibil , it will take somewhere around 1 to 2 months, because every bank reports on different dates .
Generally when all the accounts balances become 0, there will be an increase of 10 to 12 points, which you have already achieved.
Again evennif one account reports positive balance points will go down by 10..

This is how it works..

Try patiently amd see over 6 months period.then you will find out

 

[nkparsana]

Simulator works perfectly in my case .
When we say all CCs having 0 balance, theybhave to be reported to cibil. By the time you make 0 and by the time all banks report to cibil , it will take somewhere around 1 to 2 months, because every bank reports on different dates .
Generally when all the accounts balances become 0, there will be an increase of 10 to 12 points, which you have already achieved.
Again evennif one account reports positive balance points will go down by 10..

This is how it works..

Try patiently amd see over 6 months period.then you will find out

Thanks! I got it what you're saying and that is what I use to go ahead in past and presently as well.

As you mentioned even if one account reports positive balance -- I believe this means one or many CCs have some o/s amount, right? If this reports and updated in cibil, points fluctuate/decrease depending on particular individual profile.

Similar to above, if I again make all ccs o/s amount to 0 this month, do you think points will get increased by 9 or 10 or something? (For temporary ignore the simulator)

 

[SSV]

Similar to above, if I again make all ccs o/s amount to 0 this month, do you think points will get increased by 9 or 10 or something

Y e s,
But the same will be predicted by simulator as well..
Except for home loan everything else should be 0 or negative

 

[Hell_Kitty]

Just for curiosity if one is opting for an EMI does it impact the CIBIL score in any way?
@SSV @D₹V @helloworld @vaibhav111

 

[D₹V]

Just for curiosity if one is opting for an EMI does it impact the CIBIL score in any way?
@SSV @D₹V @helloworld @vaibhav111

If it's on credit card, it'll take you nowhere 🤣🤣. CC companies report usage payment history each month even if you use or not.

Usage increase then CIBIL decrease.

 

[helloworld]

Just for curiosity if one is opting for an EMI does it impact the CIBIL score in any way?
@SSV @D₹V @helloworld @vaibhav111

product emi - no impact unless you miss the payment

loan emi:

loan on card: it will use utilized credit balance as outstanding and reduces as and when emi paid.

loan against card: separate loan without blocking credit limit, new account.

minor impact with credit utilization and accounts, but the higher you have credit history.. lower is the impact.

 

[nkparsana]

Y e s,
But the same will be predicted by simulator as well..
Except for home loan everything else should be 0 or negative

Thanks @SSV sent you DM already. Could you please check and let me know your thoughts. Thanks in advance!

 

[shrewdoc]

I had been following what @SSV explained in the beautiful article above and I can confirm some details as Tried & Tested by myself and my family member accounts:
1. Prepaying BEFORE Bill Generation really helps and boosts your score by ~10 points immediately.
2. Keeping Utilization BELOW 30% on Individual accounts.

If you're someone who has utilized >30% on an individual credit account, but OVERALL utilization is <10%, then if you think your score won't be affected, you're MISTAKEN. My CIBIL took a plunge by ~17 points when I used my HDFC card by around 75% last year, when my Overall Utilization was around ~6%. It bounced back when I cleared the dues after Bill Generation by only 10 points. So I was at a loss there.

>> It is important to note that PREPAYING BEFORE CIC Reporting Date is IMPORTANT HERE. If your credit card company is reporting to CIBIL on 30/31, you should clear your dues before that date, IRRESPECTIVE of Bill Generation Dates here.

In my case, I have set 28 as the Bill Generation date across ALL my cards. Hence, whatever maybe the CIC reporting dates (Month End/Bill Generation Date), my dues are always prepaid.

My tip: For institutions reporting on 30/31 and NO option to prepay due to BBPS limitations, you can let their bill generate on 28, and pay before 30/31. It will still be reported as NILL due to CICs.

>> The key thing here is: the CONTINUOUS reporting of Nil Dues by financial institutions help with your CIBIL Score; as not using the card account does not report anything and score won't update. For that, you need to prepay your dues as explained above.

 

[drsel]

I had been following what @SSV explained in the beautiful article above and I can confirm some details as Tried & Tested by myself and my family member accounts:
1. Prepaying BEFORE Bill Generation really helps and boosts your score by ~10 points immediately.
2. Keeping Utilization BELOW 30% on Individual accounts.

If you're someone who has utilized >30% on an individual credit account, but OVERALL utilization is <10%, then if you think your score won't be affected, you're MISTAKEN. My CIBIL took a plunge by ~17 points when I used my HDFC card by around 75% last year, when my Overall Utilization was around ~6%. It bounced back when I cleared the dues after Bill Generation by only 10 points. So I was at a loss there.

>> It is important to note that PREPAYING BEFORE CIC Reporting Date is IMPORTANT HERE. If your credit card company is reporting to CIBIL on 30/31, you should clear your dues before that date, IRRESPECTIVE of Bill Generation Dates here.

In my case, I have set 28 as the Bill Generation date across ALL my cards. Hence, whatever maybe the CIC reporting dates (Month End/Bill Generation Date), my dues are always prepaid.

My tip: For institutions reporting on 30/31 and NO option to prepay due to BBPS limitations, you can let their bill generate on 28, and pay before 30/31. It will still be reported as NILL due to CICs.

>> The key thing here is: the CONTINUOUS reporting of Nil Dues by financial institutions help with your CIBIL Score; as not using the card account does not report anything and score won't update. For that, you need to prepay your dues as explained above.

Of the three which is the best, when prepaying before the bill generation date --
1) small credit balance less than 100 rupees
2) ZERO balance
3) small dues less than 100 rupees

 

[shrewdoc]

Of the three which is the best, when prepaying before the bill generation date --
1) small credit balance less than 100 rupees
2) ZERO balance
3) small dues less than 100 rupees

Second one, ie. 0 due is the best, as any unpaid due is still considered uncleared credit.

 

[SSV]

Of the three which is the best, when prepaying before the bill generation date --
1) small credit balance less than 100 rupees
2) ZERO balance
3) small dues less than 100 rupees

0 or -ve on each and every account except for Home loan..

 

[itzmycard]

@SSV axis is now also reporting bill generated balance to cibil

 

[bigbyte]

@SSV axis is now also reporting bill generated balance to cibil

Ye cyapa khatam hone ka naam hee nahin leta