Get all Your Credit Score Queries Answered
Your credit score is an important part of your loan application, and is carefully scrutinized by lenders. A good credit score can lower your loan interest, so it is important to understand how it works and how a credit score can be improved.
If you have applied for a loan in the past, you may already be familiar with the term credit score. It fulfils an important eligibility criterion when Applying for a Personal Loan, Business Loan or Home loan, along with income, employment status and age. It forms the basis of evaluating your loan application since a lender may either decline or accept your overall application based on your credit score. Therefore, it is important to possess up-to-date information about your credit score and understand how it works. There are numerous organizations that calculate your credit score and understanding how they arrive at the final number can help you increase it, and thereby increase your chances of getting a loan application approved or even getting a low interest rate. Let’s begin with the basics.
Credit Score Explained :
What is a Credit Score?
A credit score is a numerical expression derived from an analysis of a borrower’s credit files. This score accurately calculates and represents a borrower’s creditworthiness. This score often accompanies a credit report generated by credit bureaus. Numerous financial institutions use a credit score as a basis of judging the risk involved in lending money to a particular borrower. It helps lenders speculate whether the borrower is capable of and willing to repay the loan. It also helps them understand the borrower’s previous history of debt, loans and financial behaviour.
Background of Credit Score in India
The system of credit scoring began in India a long time ago. India has four major organisations that calculate credit scores, Credit Information Bureau India Ltd (CIBIL), Equifax, Experian and Highmark. The first among these, and possibly the most popular, is CIBIL, which was established in August, 2000.
Each organisation has its own set of guidelines with regard to measuring a credit score. The score generated from every organisation has its own unique value and is evaluated by financial institutions and lenders when they receive a loan application.
In India, borrowers with a good credit score are highly eligible to have their loan applications approved. Your credit score is impacted by various factors:
- Your success or failure at repaying EMIs on time
- The number of credit cards you own
- The number of rejected loan applications
- The various types of debt you have, be it credit cards or a personal loan
Needless to say, it is important to have a good credit history to have a good credit score.
Major Credit Score Companies in India
What are the major Credit Score Reporting Companies in India?
The major credit score companies in India are Equifax, CIBIL, Experian and Highmark. Each of these organizations assign different values to their credit rating. Financial institutions accept scores by any four of these organisations; however, CIBIL is most preferred by lenders. This is why your credit score is often referred to as your CIBIL Score.
What is the difference between Equifax, CIBIL, Experian and High Mark?
Equifax: This credit scoring agency was established in 2010. It charges every individual consumer Rs.400 for their credit score. It scores borrowers on a scale between 1 to 999, with 1 being the lowest score and 999 the highest. The organisation offers its consumers numerous other services like credit information reports, etc.
CIBIL (Credit Information Bureau India Ltd.): This is the most popular credit scoring agency, and was established in 2000. It offers its customers numerous services apart from credit scores like credit information reports, market insights, and more. For financial institutions, it offers services like portfolio review analysis, company bureau analyser, etc. It takes up to 7 days to generate a credit report, and rates individuals between 300 to 900 with 300 being the lowest score and 900 the highest. The company charges Rs.500 for a combination of a credit report and credit score.
Experian: This credit scoring agency was established in 2006 and received its credit licence in 2010. It charges customers Rs.399 with taxes to calculate their credit score. The Experian score also ranges from 300 to 900, with 300 being a poor score and 900 being a high score. This company offers numerous services to organisations and consumers alike. For organisations, it delivers services like customer acquisition, recovery of money, customer management, data and analytics, etc. For consumers, this organisation specializes solely in providing credit information reports. The organisation takes an average of 20 days for generating a credit report.
Highmark: This credit score organisation started in 2006 and was granted a license in 2010. Its scores range from 300 to 850. A score of 720 and above is considered favourable while a score of 640 and below is considered poor. Highmark also offers its consumers a range of services like a credit report, portfolio management, etc. For companies, it offers services like data quality management, credit assist, verification and more. It is a relatively new entrant in the industry and offers a varied set of services.
These top four credit reporting companies have a range of unique credit scoring services. You can choose any one from them depending on your requirements.
All Your CIBIL Score Queries Answered
While each of these credit scoring agencies have their own unique selling points, but CIBIL is the most trusted credit reporting agency in India.
A CIBIL score is normally considered the most accurate and comprehensive. This is mainly because CIBIL not only has the largest collection of consumer information and data, but also considers an extensive range of factors when making their calculations. This means that their score best reflects an individual’s credit profile and history.
Lenders are concerned about getting the most accurate analysis to minimize the risk of approving a loan at low interest to a potentially risky applicant. Thus, they are most satisfied by CIBIL. For example, if a credit scoring agency only considers income as a factor in assessing the creditworthiness of a borrower without other factors, it is possible that the applicant could have pending EMIs that would reduce his repayment ability. Thus, not considering a range of factors can be particularly damaging and may provide inaccurate results. CIBIL currently tops the list by storing, evaluating and providing credit history information of over 550 million Indian borrowers to financial companies, banks, etc.
What is the preferred Credit Score agency in India?
As CIBIL offers a holistic analysis of the creditworthiness of an individual, it is the most preferred form of credit scoring in India. CIBIL takes into account two primary factors when calculating the final score:
A Large Database of Information: The oldest credit scoring company in India, CIBIL works with over 2400 lending companies, banks, financial institutions, NBFCs, etc. to maintain the records of over 550 million individuals. Thus, it has the ability to extract numerous primary and secondary information about an individual, which helps provide an accurate rating of creditworthiness.
Calculations based on Concrete Factors: CIBIL does an extensive analysis of various factors like repayment history, various types of loans taken, the mix of debt taken currently and in the past, the length of an individual’s credit history, etc. These factors help lenders decide if the potential borrowers are likely to honour their loan obligations.
Why is your Credit Score important?
Credit scores are vital because they play a deciding role in two ways:
- Whether you can your loan application approved or not
- What interest rate your lender offers you
Importance of Credit Score to a Financial lending Institution:
In terms of a lender, a credit score is important because it:
- Provides the institution with a clear understanding of the borrower’s creditworthiness
- Helps the organisation estimate the amount of funds that may be safely offered based on the borrower’s credit history
- Helps the financial institution decide whether to approve or decline a loan application.
- Provides the financial institution clarity on the borrower’s history, and his or her success of paying loans in the past
- Works as a concrete basis for decision-making
Importance of the Credit Score to a Borrower:
In terms of an individual loan applicant, a credit score is important because it:
- Helps the borrower review his or her credit history
- Helps the borrower understand his or her creditworthiness, and take steps to improve it.
- Impacts the approval of a loan application
- Affects the interest rate offered by the lender
What are the factors that impact your Credit Score?
- Credit Balance: A credit balance can be described as any amount of unused credit on your credit card. If you use 70% of the available credit, while some individuals use up most of their credit, others ensure they leave some amount untouched. A high credit balance can give you a good score, while a low or non-existent credit balance can lead to a poorer score.
- Success at Repaying Past Loans: Any loans taken by you are to be repaid within the chosen tenor. Your success at repaying a loan in the past will greatly influence your credit score. Individuals with less success at repaying old loans are likely to have a poor credit score as compared those who have succeeded in paying loans in a timely manner. If you have prepaid your loans, this may also affect your credit score positively.
- New Credit Acquisitions: Every new credit you acquire has the scope to impact on your credit score, positively or negatively. The higher the number of recent credits acquired, the more likely it is that your credit score will be low, since it affects your ability to repay the new loan you are applying for.
- Durations of Existing Loans: The duration of a loan is the time period over which you will repay the loan. This can affect your credit score too. For example, if you have a long repayment tenor for an existing loan, this may affect your credit score negatively.
- Mix of Debt or Types of Debt Undertaken: Over a period of time, you may have acquired a mix of debt such as credit cards, personal loans, car loans, student loans, etc. A good mix of credit gives you a better score, as it reveals that you are an experienced borrower with a good track record.
- Duration of your Credit History: If you haven’t undertaken any credit, you will not have a good credit score! And if you haven’t been financially active, your credit score will reflect poorly as well. So the duration of your credit history matters.
Who checks Credit Score?
A credit score is checked by lenders before providing credit or loans to a borrower. It is used as a means for judging the risk of lending money to a borrower and the borrower’s financial ability to repay the loan. The credit score is calculated by a credit scoring company like CIBIL, who reviews a borrower’s credit history and behavior.
What is Credit Score used for?
- It is one of the major eligibility criteria when a borrower applies for loans
- It is used to determine a borrower’s creditworthiness
- It is used to calculate the interest rate to be offered to a borrower of a new loan
How does a Credit Score look like?
A credit score is usually a numerical figure that is in triple digits. A CIBIL credit score ranges from 300 to 900, and a good score is anything about 750.
What is a good Credit Score?
For Equifax, the highest score is 999, and for Highmark it is 740. For both CIBIL and Experian it is 900. The closer you are to these scores, the better your chances are at acquiring any type of loan.
When is the CIBIL Score Updated?
The CIBIL score is updated every month, so every change in your monthly financial transactions is reflected in your score.
This means that you should be even more careful at paying off your EMIs on time very month as a slight delay may adversely affect your CIBIL score.
What does NH or NA mean in the CIBIL Score?
Receiving NH or NA in your CIBIL score is not a bad sign. It is common for individuals with no credit or loan history to receive such ratings. It could mean one of any three possibilities listed below:
- This rating can mean that you possess an ‘add on’ credit card with limited credit exposure.
- It could also mean you are relatively new to credit systems and have no credit history as such.
- This can also signify that your credit activities have been dormant for a long period of time.
How much Credit Score is required to get a Loan :
How much Credit Score is required to get a Personal Loan?
To successfully have a personal loan approved, you may require a CIBIL score of above 700. For more you can visit our blog to know that how much CIBIL Score is Required to Get a Personal Loan.
How much Credit Score is required to get a Home Loan?
Ideally, you should have a credit score of 650 and above to get a home loan. A higher credit score will ensure a better interest rate for you.
How much Credit Score is required to get a Business Loan?
A CIBIL score of 800 points is ideal in case of a business loan. This is because the loan amounts for business loans are usually much higher than personal loans. Also, business loans are usually advanced to new businesses, which pose more of a risk to lenders.
How much Credit Score is required to get all Loan Products?
On an average, it is preferable for an individual to have a CIBIL score above 600 in order to avail loans.
What are the advantages of having a good Credit Score?
- A good credit score increases the chances of your loan application getting approved
- It helps process your loan application faster
- It helps establish trust with the lender
- It leads to a lower interest rate on your loan application
- It helps you negotiate better terms with your lender
- It helps you get a higher loan amount
How is a Credit Score Calculated?
How is Credit Score Checked?
Your CIBIL credit score is calculated on the basis of various factors such as:
- Calculation of new credit: The CIBIL score takes into consideration every new credit you apply for. Each time a new credit is issued the lender goes through a check. The higher your level of credits, the more your credit score will drop.
- Check of the time of your previous loans: CIBIL also runs a time check that involves analysing the period of time for which you have had loans in the past. The higher this time is and the more number of EMI payments you have made, the better your score.
- Credit limit analysis: The credit limit is an agreed quota of credit that has been agreed upon between you and your lender. When an amount of credit on the credit card goes unused, it is labelled as credit balance. CIBIL intrinsically analyses this balance. If you have a small credit balance or if you have used up all your credit, your credit score result will be lower as compared to applicants with high credit balances.
- Scrutiny of your repayment history: This section of the CIBIL tests and reviews your ability to repay a loan by analysing your repayment history in the past. An applicant who has repaid all previous loans within the due time period is more likely to achieve a better score as compared to an applicant who has failed at repaying loans.
Can I check my CIBIL Score myself?
Yes. To check your credit score you can simply log on to the official website of CIBIL and pay a nominal fee. Your credit score will be sent you to along with the credit information report. Even we also have a dedicated content from where you can get more information on How to check CIBIL Score for Personal Loan.
When is Credit Score Checked?
A credit score is an important piece of information and can be checked during any stage of an application for a loan, credit card, top up loan, etc.
Lenders normally check your credit score when they receive a loan application.
You should check your credit score much before you plan to apply for a loan. This way, if you discover that your credit score is low, you can work on increasing it.
What is a Credit Report and How can I get it?
A credit report is a document that entails an in-depth analysis of your credit history and current status. It usually contains:
- Personal details such as address
- Employment history
- Past loans undertaken
- Outstanding loans
- Delays in repayment
- Credit card history and information
You can get your credit history along with your credit score when you visit the websites of the different credit scoring companies in India.
How much do I have to pay to get a Credit Report?
The fees charged for a credit score and report varies from company to company.
- Equifax charges you Rs.400 for generating a credit report along with a credit score.
- CIBIL charges a fee of Rs.500 for both a credit score as well as a credit report.
- Experian provides you a credit report and a credit score for a fee of Rs.399.
- Highmark offers you a credit report and a credit score for free.
What happens if someone has a bad Credit Score?
- A bad credit score can cause your applications for a loan to be rejected.
- It can hamper your reputation with lenders and reduce the level of trust.
- A bad credit score can also cause lenders to charge you a higher interest rate.
- It can lead to a sanction of a smaller loan amount.
- It can delay the processing of your loan application as lenders will take more time to assess your risk and credibility
How can Credit Score be Improved?
A poor credit score can be a problematic affair and can cause a range of adverse effects; however, there are numerous ways to improve your credit rating.
- Pay off outstanding debts
- Pay your EMIs on existing loans on time
- Cancel unused credit cards
- Pay off credit card debt with a debt consolidation loan
- Take a small personal loan to improve your credit history
- Diversify your debt to establish a well-rounded credit history
- Don’t apply for any new loans until your score improves
Long-term tips to improve your credit score
- Ensure that you do not acquire more credit than you can repay. Always match your income to your loans, and don’t spread your legs outside the financial blanket!
- Keep a healthy credit balance on your credit card. A high credit balance creates a good impression and shows that you are a low risk borrower, thus improving your credit score.
- Make it a habit to repay all your credits and loans on time and avoid keeping any pending debts.
When is Credit Score Updated?
A credit score reflects changes in your financial behaviour every month, but can take up to year to improve if you are actively working on strengthening your credit score.
How can I correct any error in my Credit Report?
Sometimes, a low credit score is due to an error in your report. These errors can give rise to a false and inaccurate credit scoring, thus damaging your reputation. But there are certain measures that can be taken to correct errors in your credit scoring:
- Inform your credit bureau using any medium necessary.
- Clearly pick out every mistake that has been made in the report and do not overlook anything.
- State all the correct facts in your defence, and explain to the bureau where they have gone wrong and the reasons you think that they may have made an error.
- After that, request for the errors to be deleted and the credit score to be re-analysed.
- In case you have recently applied for a loan, write a letter to your lender listing the scenario and stating the fact that an error has been made while evaluating your credit score.
- Attach and send any documents you deem necessary to keep your stance clear.
Now that you know the answers to all your credit queries, go ahead and apply for a loan to fulfil your needs and dreams. For the best rates in affordable financing along with flexible repayment options and a host of other benefits, visit Bajaj Finserv.