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.....

 

[Tarun239]

Thank you very much..
I didn't research much on over-leverged with respect to how each bank treats it..

Things know for me so far:
1) Not all banks implement Over-levergaed concept
2) SBI, YES, HSBC etc use it.
3) every bank internal criteria is doifferent to another bank..
Will look into this deep at a later stage..
People's inputs also needed to better understand the exact facts about this.. as one person can not experience all

I think this is one very important aspect where other members should contribute. Other aspect is RBI should step in where a person who has 4-5 credit cards of same bank with same limit, it is being reflected in cibil separately, this I think contributes massively in being a person reflected as overleveragedin his/ her cibil report. When the limit is shared, it should not show up in cibil type reports separetely in my view.

 

[SSV]

Outstanding includes both loans outstanding+ cards outstanding or only cards outstanding?

both loans and cards

 

[SSV]

I think this is one very important aspect where other members should contribute. Other aspect is RBI should step in where a person who has 4-5 credit cards of same bank with same limit, it is being reflected in cibil separately, this I think contributes massively in being a person reflected as overleveragedin his/ her cibil report. When the limit is shared, it should not show up in cibil type reports separetely in my view.

Correct.. there are a quite few places, "chalta hai" attitude is going on in the industry..
No-one actaully cares.. until it hurts them.. very sad fact..

 

[karuturi24]

both loans and cards

I mean % of utilisation includes both cards + loans outstanding?

 

[sm9811911]

Thank you very much..
I didn't research much on over-leverged with respect to how each bank treats it..

Things know for me so far:
1) Not all banks implement Over-levergaed concept
2) SBI, YES, HSBC etc use it.
3) every bank internal criteria is doifferent to another bank..
Will look into this deep at a later stage..
People's inputs also needed to better understand the exact facts about this.. as one person can not experience all

Good read as always thanks

 

[SSV]

Thanks for this post @SSV. It's so simple to understand and catch the crux with detailed explanation and easy to understand examples. Respect to you for putting in the efforts.

Thank you.. thank you very much for your honest feed back..
I was plannig to do this post for a very long time.. I have everything in my brain..
It is very hard to put this into a post for better consumption of an ordinary user....
I tried to wirte this post several times but stopped .. now it took about 4 to 5 hours to frame this post .. I am glad people are able to understand this post..

Very happy...

 

[SSV]

I mean % of utilisation includes both cards + loans outstanding?

yes .. it gets calculated both at overall and individual account level..

for Secured loans especially Home loans , it doesn't matter much.. ig

for unsecured loans definitely...

 

[Tarun239]

Correct.. there are a quite few places, "chalta hai" attitude is going on in the industry..
No-one actaully cares.. until it hurts them.. very sad fact..

I have more than 30 plus cards with around 80 lakh limit reflecting in cibil( around 3 times of my annual income), due to this overleveraged thing, I faced rejection with union bank credit card.So, that's d only time I felt this overleveraged thing, I didn't face this issue with any other bank till date.

 

[SSV]

I mean % of utilisation includes both cards + loans outstanding?

just explain your particular case with details so that we can advise

 

[flimz]

The High limit thing is new to me, thanks for sharing your knowledge.

 

[SSV]

The High limit thing is new to me, thanks for sharing your knowledge.

Yes, not a lot of people know this concept of "HIGH LIMTI"..

Even though they know about " HIGH LIMTI" they may not know the real intent behind this concept ...
They just throw it away as it is not considered in CIBIL score calculation..


It is actually a very important element in the absence of santioned credit limit reported..
How we need to utilise it to out favor , that not many are aware of it..
Thanks for noticing and highlighting about it...

 

[s1t2y3a3m6]

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 ........

HDFC is worst in this case. Axis and other banks report on month end but their report is according to bill generated details but in HDFC they reported same details outstanding on month end rather than bill generated amount.

 

[SSV]

tagging misspelt @its_karan ..

 

[SSV]

HDFC is worst in this case. Axis and other banks report on month end but their report is according to bill generated details but in HDFC they reported same details outstanding on month end rather than bill generated amount.

Are you sure about this?
Banks reporting as on month end but reporting the figures of bill generation date amount??

What HDFC is doing is right coneptually..

 

[s1t2y3a3m6]

Are you sure about this?
Banks reporting as on month end but reporting the figures of bill generation date amount??

What HDFC is doing is right coneptually..

I check my report every month. In my case axis bank always report bill generated amount on month end. So it's easy for me to make this account -ve balance by paying before bill generate.

 

[SSV]

I check my report every month. In my case axis bank always report bill generated amount on month end. So it's easy for me to make this account -ve balance by paying before bill generate.

okay let me check about my numbers..
what I remeber from a long time ago, AXIS reports twice both on month end and bill generation date.. that was about year ago when I observed that..

 

[Yugi]

Tagging the TF army guys for wide spread knowledge...

Enjoy...

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You are also becoming slowly like supreme commander Abhishek

 

[SSV]

You are also becoming slowly like supreme commander Abhishek

I hope not in the case of "aim behind it " ...

I tagged all this army because, I promised about this post at many places to many people in the last 10 months.. so hard to find all those threads..
instead of that ., one FASAK.. all become aware of this post ...

 

[shivamk]

Thank you.. thank you very much for your honest feed back..
I was plannig to do this post for a very long time.. I have everything in my brain..
It is very hard to put this into a post for better consumption of an ordinary user....
I tried to wirte this post several times but stopped .. now it took about 4 to 5 hours to frame this post .. I am glad people are able to understand this post..

Very happy...

Yeah
Writing a structured post that super easy to understand is very toughy. This post is a great example of this.

 

[its_karan]

tagging misspelt @its_karan ..

Thank you Sirji