Daybreak - No one knows how Cibil rates your finances. Not even your bank

Episode Date: July 16, 2025

CIBIL or Credit Information Bureau (India) Ltd is one of only four credit information providers in the country that is licensed by the RBI. It is considered the oldest and the most reliable. It essentially calculates your credit score, a three digit number between 300 and 900, and provides it to banks so they can judge your creditworthiness. Usually, anything over 700 is considered good. But this whole process is anything but straightforward. In fact, it is shrouded in mystery. Each of these bureaus typically have their own algorithm to compute your credit score. And they are all somewhat similar. But nobody–not the borrowers and not even the banks–fully understand how these credit information providers, like Cibil, actually rate finances. In this episode, we try to demystify these credit bureaus and their mystery calculations that decide our fate.Tune in. Attend The Ken's next event. Details here. *This episode was first published on February 6, 2025Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcast, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the Sita Ranehant. secret-source stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of

multi-camera shoots in professional studios, laborious editing and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert, as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts. or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Hey there, before we begin,

if you are building or working on products in any form, you need to hear this. The floodgates are open. AI isn't just transforming the tools used by product managers, designers and engineers. It is reshaping how products are made, how fast they're built, what teams look like and who really calls the shots inside companies. On the 26th of July, at the Bangalore International Centre,

the Kians Beyond the First Order event returns for its fourth edition. We'll dive into the real, messy and exhilarating transformation playing out inside India's startups and organizations. How are product cycles evolving when AI can write the code, generate ideas and even make decisions, which teams are gaining influence and which ones are being edged out, what tools are winning and who is resisting? You will hear from some of India's top product minds.

Kailash Nad of Zeroda, Somi Dib Mukharji of Dastun, Akash Anand of Kluso, and Siddu Punapa, founder of the AI-Native startup Real Fast. This time, in addition to the live event, we will also be live streaming it. Details about the tickets and the live stream are in the show notes. And now back to the episode. Purov is a 32-year-old, and he is every Indian parent's dream child. He went to a top engineering college, managed to get the 99th percentile in the MBA entrance examination, and now he draws an annual salary of more than 60 lakh rupees.

And yet, despite ticking all of these boxes, Purov has always struggled with getting a loan. Just recently, six banks rejected his application for a $22,000-lacrupy loan to buy a small patch of land in his hometown in Uttrakhand. To Purov, his low credit score is inexplicable. And this is not just a one-off example. Purov is among eight people that the Ken reporter Grona Kumar Gunjin spoke to who have been struggling to get loans for no apparent reason. The thing that ties them all together.

is that they all have absolutely no idea what is hurting their creditworthiness. I'm sure you're familiar with Sibyl or Credit Information Bureau India Limited. It is one of the only four credit information providers in the country that is licensed by the Reserve Bank of India. And of the four, Sibyl is considered the oldest and the most reliable. What Sibyl essentially does is that it calculates your credit score and provides it to banks so that they can judge your creditworthiness. It will assign you a three-digit credit score between 300 and 900.

Usually, anything above 700 is considered good. But this whole process is anything but straightforward. In fact, it is shrouded in mystery. You see, each of these bureaus typically have their own algorithm to compute your credit score. And they are all somewhat similar. But the thing is, nobody. Not the borrowers and not even the banks fully understand how these credit information providers like Sibyl actually rate your finances.

Which is why we hear of many unfortunate instances like Purovs where a loan applicant checks all the boxes on paper, they have a steady job, they make good money and yet their loan application ends up being rejected just because of an inexplicably low credit score. Ronex spoke to another Mumbai-based real estate. businessman named Ankid Bhasin, who ended up in a similar situation. He has been desperately trying to get a 60-lac-rupe loan to buy a house, but has been turned down by every bank that he has gone to. Why?

You guessed it. A low Sibyl score of 600. So now, Anketh is going from bank to bank, trying to figure out how to up his score. In this episode, we try to demystify these credit bureaus and their mystery calculations that are deciding the fates of people like Purov and Ankhit. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I don't chase the news cycle.

Instead, every day of the week, my colleague Rahal Philippos and I will come to you with one business story that is worth understanding and worth your time. You see, Sibyl does not give out public information about its calculation methodology. So when we wrote to the Bureau, all it said was that, while earlier the Sibyl score was calculated based on 24 months of a borrower's credit history, last year onwards, it changed to 36 months. And that's it. It did not elaborate on the methodology, and it did not respond to any of our questions on the opacity of the computation. So then my colleague Ronek went ahead and spoke to two former Sibyl professionals

to get a sneak peek into that mysterious algorithm that decides our credit scores. One of them said that naturally the most important factor in this whole process is a potential borrower's payment history. Typically, a clean payment history with no delays alone can add up up to 300 points to your score. So what happens if you delay a payment? Well, one of the ex-Cybil employees said that a borrower typically loses up to 30 points for every 30 days of delay in payment.

And that can really set you back when you decide. to take a loan. You see, once a late payment is marked, it takes nearly 24 months for a borrower to return to their previous score. That is two years, and that is assuming they do not try to get a new loan or default again. And that is where things went wrong for Purov. Turns out, for nearly three years, he had a pending credit card bill that he claims he was never alerted about, and that is where he ended up losing most of his points. One of the former Sibyl executives told Ronek that it isn't the amount of the default, it is the duration that matters.

So hypothetically, you could have missed a credit card payment of a couple of thousand rupees, but it will set you back by a cool hundred points if you accidentally pay the bill a few months late. Another factor that Sibyl takes into account while calculating your credit score is utilization of credit. Now, this has mainly got to do with credit cards. So say, a borrower has a credit limit of one lakh rupees and they spent 30,000 rupees. Their credit utilization rate is therefore 30%. The former Sibyl executives said that this is a good place to be. Anywhere below 30% positively adds to a borrower's credit score. Anything above 29% and below 1% affects the score adversely. funnily enough, most of us assume that the more we spend on a credit card, the better.

At least that is what banks issuing these credit cards to us tell us. But overusing your credit card can actually tank your score. Other items like the long-term trend of outstanding balances, the ratio of actual repayment amount to the total amount due, and the number of new accounts opened also play a role in determining the credit score. But a borrower has no access to most of this information. Okay, so far, we've spoken about what makes you fall down the credit ladder. But what will give you a leg up?

More on that in the next segment. Stay tuned. There are two things that will really work in your favor when it comes to your credit score. Credit Inquiry and Credit Mix. First, credit inquiry. This is a request that a lender places to access a borrower. credit report. It indicates that a borrower is looking to take more loans. Turns out, Sibyl rewards you handsomely when you show an appetite to borrow more. But there is such a thing

as too many inquiries. The former Sibyl executives said that up to two inquiries in a year is a good place to be. More than that could indicate the possibility of over lagging. And in that case, your points could fall. And that brings us to credit mix. So, Credit mix indicates the types of outstanding loans that a borrower has. So, for example, credit cards, personal loans or home loans. Having a healthy mix of every type allows a borrower the chance of a higher credit score. Both of these credit inquiry and credit mix are naturally interconnected. Now, typically, when a bank rejects your loan application, they will inform you about your score.

And sometimes, to get your score back up, a bank will urge, borrowers to take up another loan, paid back on time and gradually see the improvement. But more often than not, lenders are indifferent about customers improving their scores. For a bank, a subpar score indicates a risky borrower with a bad credit history. So, if a bank does not reject an application, it charges higher interest rates to cover the risk. Conversely, a low score amounts to higher interest income for lenders. An HGFC executive, Ronek spoke to, said that it is very common for people like Purov and Ankhid to come along with decent cash flow but low credit scores.

Banks know that the risk is low for such cases, but they still give out loans at higher interests on the pretext of low scores. Sure, relationship managers will sometimes advise borrowers on improving their scores. But usually, even they do not know much about the process. So one of the most commonly used mediums to improve these scores ends up being credit cards. One wealth manager, Ronex spoke to, said that in case a borrower is using a new credit card only to improve their score, their best case scenario is to have a utilization rate of under 10%. They should also ideally repay their due credit as soon as possible.

Generally, at least five days before the due date, because that way, even if there is a delay by the bank in reporting your payment to the credit bureau, you are covered. Now, there have been also cases where borrowers have done everything right, but their credit score is still very low. In some of these cases, they've realized that a loan was wrongly reported in their name or several timely payments were not recorded in the credit report. And unfortunately, they end up being penalized for it. In such cases, bankers advise borrowers to follow the redressal route. Approach the bank to take it up with the credit bureau.

But all of these instances point at just one thing. The importance for all of us to be financially literate. To better understand creditworthiness, interest rates, the factors that contribute to loans being approved or denied. But that becomes difficult when the process for calculating credit scores is shrouded in so much secrecy. All things considered, the advice that bankers, wealth managers and people who work in these bureaus will give you is to maintain healthy financial habits from day one.

Because improving your credit score is far more difficult and time-consuming than just maintaining a high score. And that is something that people like Purov and Ankhith learnt the hard way. But you don't have to. Daybreak is produced from the newsroom of the Ken, India's first subscriber for focused business news platform. What you're listening to is just a small sample of our subscriber-undi offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website.

Today's episode was hosted by Snikda Sharma and edited by Rajiv Sear.