Business Original explainer
Your credit score decides how lenders see you. Here is how the CIBIL score is built, what moves it, and how to improve it.
When you apply for a home loan, a credit card, or a personal loan, the bank does not start by asking how much you earn. It starts by checking a three-digit number: your credit score. In India, the best-known version is the CIBIL score, and understanding how CIBIL score works starts with what lenders see in your borrowing history.
A credit score summarises how you have handled borrowed money — not your salary or savings, but your behaviour: did you pay on time, how much credit did you use, and how often did you ask for new credit?
Your CIBIL score is calculated by TransUnion CIBIL, one of four credit bureaus licensed by the Reserve Bank of India. The others are Experian, Equifax, and CRIF High Mark. Banks and finance companies report your loans and credit cards to these bureaus, and each bureau turns that record into a score. A lender may check any of them, so your scores can differ slightly between bureaus.
The CIBIL score runs from 300 to 900. The closer you are to 900, the lower the risk you appear to a lender. TransUnion CIBIL says a score above 700 is generally considered good. Many lenders treat 750 and above as excellent, and that is often where the best interest rates become available. Each lender sets its own cut-offs, though, and a good score does not guarantee approval. Income, existing EMIs, and the lender's policy still matter.
If you have never taken a loan or a credit card, you may have no score at all, sometimes shown as NA or NH. TransUnion CIBIL does not publish the exact formula behind the score. The model is proprietary, so no website can reproduce it precisely, and any service claiming to show the exact percentage each factor carries is guessing.
Five broad factors feed into the score:
A low score does not only mean a rejected application. It can mean approval at a higher interest rate, a smaller loan amount, or a lower credit card limit. On a home loan, even a modestly higher rate adds up to a large sum over twenty years. On a personal loan, the difference can be the gap between an EMI you can manage and one you cannot.
Some lenders will still approve a borrower with a lower score, often a non-banking lender, but usually on stricter terms. Others may ask for a co-applicant or security. From the lender's side, the score is a prediction based on past repayment behaviour — a record of specific accounts and payments, not a verdict on your character.
You do not have to guess. Under Reserve Bank of India rules, each credit bureau must give you one free full credit report, including your score, once in every calendar year — January to December — if it holds your credit history. With four bureaus, that means up to four free reports a year, one from each. TransUnion CIBIL confirms the same entitlement on its own site: one free CIBIL score and report once in a calendar year.
Claim your free report from CIBIL and check every account, balance, and payment entry. Look for loans you do not recognise, accounts shown as open after you closed them, and payments marked late when you paid on time. If something is wrong, raise a dispute with the bureau and the lender concerned, and keep a record of what you sent. Use the bureau's own website, and be wary of apps that ask for payment or promise a corrected score. Checking your own report does not lower your score.
Improving a score is slow work, measured in months rather than days. That is the first myth to drop: no legitimate service can fix a credit score in a few days, however confident its advertising sounds. A score is built from months of reported payments, so anyone promising a quick repair is either selling you a report you can get free, or asking you to dispute accurate information — which will not work.
The second myth is that closing credit cards or paying off a loan erases the past. It does not. A closed account and its payment history can remain on your report. What changes the score over time is new, steady behaviour: on-time payments, month after month, and utilisation kept in check. Set up automatic payment for at least the minimum due on every card and EMI, bring high card balances down before applying for anything new, and check your free report at least once a year. Pay on time, borrow only what you can repay, and let the record build.
This explainer was written by The Daily Short's desk from the sources listed above. It is general information, not professional advice. Spot an error? See our Corrections Policy or tell us via the Contact page and we will correct it. Follow our official Instagram @thedaily.short.