How are Credit Scores Calculated?

The CIBIL credit bureau evaluates multiple factors to calculate credit scores. Aligning with the CIBIL meaning, they assign a particular weightage to different credit behaviour aspects, including the following:

Repayment History (30%): The consistency and regularity of repaying loan EMIs and credit card bills

Credit Exposure (25%): Age and amount of credit and their outstanding balances

Credit Type and Duration (25%): The age of credit history and the types of credit products in the portfolio

Other factors (20%): Includes active credit card, existing loans, and credit-related inquiries in the recent past

Also Read: What is TransUnion CIBIL Score and How to Check Online?

Causes of a Credit Score Hitting Zero

These are the potential causes of a credit score hitting zero:

• No history of taking loans or credit cards
• Wrong reporting of the person’s demise
• Improperly matching another person's account to the individual’s credit file

Also Read: Top 10 Reasons Why Your Credit Score Has Gone Down

Credit Score Improvement Strategies

Since lending institutions give due importance to an applicant’s credit score, one must check their credit score before applying for a loan. While 0 CIBIL means no credit history, here are some credit score improvement strategies that work:

• Resolving Disputes: If wrong reporting or improper data matching are the reasons for a zero CIBIL score, the individual can report the error to the credit bureau and request a correction. After verifying the information, the credit bureau will correct their data and assign a suitable credit score.
• Building a Credit Profile: Taking loans or credit cards is the first step towards creating a credit profile. Finance companies report all credit-related activities to the credit bureaus, based on which the bureaus assign the credit score.
• Never Missing or Delaying Payments: Since repayment history forms a large part of the credit score, paying all loan EMIs and credit card bills on time is crucial to building it.
• Clearing Past-Due Accounts: People who are late on their bills should catch up and boost their credit score.
• Paying Down Revolving Balances: A substantial balance on revolving credit increases the credit utilisation ratio, hurting the credit score. Maintaining a low balance on them improves the credit score quickly.
• Limiting Credit Applications: Although credit accounts help build a credit file, each new application leads to a hard enquiry on the credit report, hurting the credit score by a few points. Therefore, limiting credit applications projects individuals as low-risk borrowers and improves their credit scores.

Also Read: How to Get a Perfect 900 Credit Score?

Conclusion

Although a zero CIBIL score means nothing negative about an individual’s credit profile, they may find it challenging to borrow loans with it. Those who perform a credit score check and find a zero credit score need not worry. They must wait patiently and follow the above steps to improve their credit and build a profile. Once the score reaches a decent figure, they can borrow credit with the best terms and conditions.

Also Read: What Is CIBIL Score - Credit Score Limit: Meaning and Impact

Frequently Asked Questions

1. Is it good to have a zero credit score?

Although a zero CIBIL score means nothing negative in the credit report, it makes access to credit challenging. Therefore, rather than not taking any credit at all, one can take small loans according to their requirements and repay them on time to build a credit profile.

2. How do you fix a 0 credit score?

Taking credit and repaying it on time is the best way to fix a 0 credit score. Many lending institutions also provide credit to no-score individuals, though at a higher interest rate.

3. Is zero credit better than bad credit?

Yes, zero credit is better than bad credit. While a zero CIBIL score means no credit history, bad credit indicates irresponsible credit behaviour. 

4. Which credit score is OK?

A credit score above 700 is OK to get the best credit deals.