Importance of CIBIL Score and Risk Index and their Calculation

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One important thing to be noticed by the money lending institutions before lending money to any borrower is the risk involved in lending to that particular borrower. And this is assessed by help of CIBIL score or risk index calculation. These two assessments carefully track the past credit history and on basis of the same provide a borrower with CIBIL score or risk index. Which further suggests if the borrower is fit to be lent or not

CIBIL score and risk index are the primary level of short listing the long list of money borrowers. However the money lending institutions cannot leak the criteria of short listing the borrowers as it would create commotion and panic among the borrowers. Sometimes when the CIBIL score or risk index are not in good shape then some institutions and websites offer the borrower a chance to improve their CIBIL score by paying additional amount of money (keep in mind that this is of no use as top money lending institutions would ultimately look for your past records, basically 6 months). CIBIL score is analyzed o the basis of credit history of the last 6 months, the offered is basically between 300-900 whereas the risk index is calculated where the borrower is having a credit history of less than 6 months or no credit history. The risk index is offered from 1-5.



In case of assessing the borrowers, they are all put into 3 major categories;

  1. Individuals with no credit history or no data available to CIBIL:

In this case the index is notified as NA (not available) or NH (no history). Anyways this is not considered as low score by any means, yet some institutions don’t lend money if an individual has no credit history as the person is a total surprise with no negative points yet has a lot of risk involved.

  1. Individuals with a credit history of less than 6 months:

In this case CIBIL offers risk index to the individuals as per the nature of their credit history. Risk index is marked between 1 to 5 and the lower the number the greater the risk and the greater the number, much is a possibility of being awarded with a loan.

è Index 1 and 2 refer to a situation of high risk.


è Index 2 denotes medium risk.

è And index 4 and 5 denote lesser risk

  1. Individuals with more than 6 months of credit history:

In this case individuals are marked with CIBIL scores. The higher the score obtained the lower is the risk involved and vice-versa. To categorize:

  • Score 300-600 is considered enough to get the loan proposal rejected.
  • Score 600-700 is just OK. And the decision is solely in the hands of the bank.
  • Score 700-775 is considered good enough.
  • And score above 775 is considered to be an account of flawless credit history of the individual.
  • There are around 70 different aspects that are taken under consideration for assessing the CIBIL score of an individual. As cases of exception, some individuals with very high CIBIL scores can also be denied of their loans as the “BANKS” have always been infamous for their overcautious nature. They may ignore all the good points of a credit history and stick to a single mistake made by an individual in the past.

Hence you don’t just need good CIBIL score/risk index but also a pinch of luck to be awarded with a loan from a bank.

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An experienced, qualified and result oriented professional with several years experience as a Chartered Accountant. Hemant assignment in various industries have helped him to develop expertise in sales, customer relation management, and Enterprenurship. Hemant has got degree in B. Com ( Hons. ) from Delhi University and is a Chartered Accountant by profession.Specialties: Accountancy, Taxation, Corporate Law, Business Audit, Entrepreneurship.
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