CREDIT SCORE
In the range of 300 to 900, a credit score is a three-digit number which determines an individual’s creditworthiness. It is a quantified creditworthiness assessment focused on an individual’s financial records. It means the financial status of banks and non-banking institutions based on the repayment history of credit cards, loans, etc. A credit score helps to gauge an individual’s repayment potential. It plays a critical role in the decision of a lender to give credit.
CREDIT SCORE RANGE AND WHAT IT MEANS?
The Credit Score reflects an individual’s repayment potential. It lies between 300 and 900, the higher the credit score, the greater the chances of borrowing. In addition, a higher credit score allows a person to negotiate the terms and conditions of the loans. The bank’s credit score range is as follows:
- Under 550: If the credit score is in this range, then it means that the person has failed to make many payments. Individuals have very low to no chances of gaining new credit under this category.
- 550 – 649: If the credit score is hanging under this category, then an average or fair credit score is named. To enhance their credit score, individuals will still be needed.
- 650 – 749: Under this category, the credit score is known as a good credit score, and credit would be available to a person. He would not be able, however, to discuss the terms and conditions of the loans.
- 750 – 900: When it comes to credit, a credit score in the range of 750 and 900 means a borrower is financially responsible. Much of his payments are made on time, including loans, credit cards, electricity, and rental fees. Banks will be prepared to offer loans at lower rates to borrowers in this group, and the borrower will also have the power to negotiate the terms and conditions of the loan.
WHO COMPUTES CREDIT SCORE?
Credit bureaus such as TransUnion CIBIL, Experian, CRIF High Mark and Equifax consolidate individuals’ past credit history and repayment actions and provide lenders with a detailed ranking from the credit bureau.
WHAT IMPACTS YOUR CREDIT SCORE?
The credit score is influenced by several variables. Some of those that are popular are:
- Repayment history: One of the most significant components of the credit score is repayment history. All payments made on credit card bills and loans are tracked by the credit bureau. If a person pays the credit card bills and EMIs on time, then it implies that the person is a responsible borrower. Timely payment of dues has a favourable effect on the credit score. In EMI payments, a single default leads to a decrease of about 30-40 points.
- Credit utilization: By dividing the total credit by the person divided by the absolute limits of the credit cards, credit usage is estimated. For most consumers, below 30 percent credit utilisation is considered better, and the lower the better for your score.
- Credit history age: The length of credit includes the age of the oldest loan, the age of the new loan, and the average age of all loans. Typically, the longer the history of credit, the better it is.
- Credit mix: The credit score is influenced by a combination of various forms of credit, such as credit cards, retail accounts, instalments, mortgages, cars, or home loans. Different types of credit options illustrate that several types of credit are encountered by the customer. In addition, it also takes into account the total accounts individuals have.
- Credit inquiries: When applying for a new line of credit, banks and financial institutions check a customer’s credit report. A record of this, known as an investigation, remains on the credit reports. Soft inquiries, such as those that come from testing one’s own credit score and some pre-qualification of loans or credit cards, do not harm the scores of customers. Hard inquiries, meaning that a bank or borrower checks the credit before making a lending decision, will harm the scores, even though the credit card or loan is not approved by a person. But a single hard investigation would always have a little effect and within a few months the scores could recover, or even increase.
LIST OF CREDIT INFORMATION COMPANIES IN INDIA
India’s four major credit information companies are:
- TransUnion CIBIL™: This is the oldest Credit Bureau that began business back in 2000. CIBILTM is the oldest, with around 2500 members subscribing to its programmes. CIBILTM also offers credit scoring for commercial institutions and micro finance institutions, in addition to retail / individual credit scoring. Furthermore, CIBILTM also offers services including analytics, consultancy, fraud, collections and portfolio management.
- Equifax: Equifax, based in Atlanta, USA, is the world’s oldest credit bureau. In addition to the US, it offers credit information services across several countries. It started operations in India in 2010 and has been providing credit scoring to individuals and commercial institutions since then. It also provides companies with value-added services linked to debt management and customer acquisition.
- Experian: This credit information company is based in Dublin, Ireland and provides businesses in 37 countries, including India, with credit information and other analytical services. For the 4th consecutive year, Experian also has the distinction of being named “The World’s Most Innovative Businesses” by Forbes magazine. In the year 2010, it started operations in India. As with other credit bureaus, Experian not only provides individuals with credit ratings, but also expands its services to other fields, such as analytics and other business decision-making services.
CRIF High Mark: In 2011, High Mark began its operations as a start-up credit bureau with Dr. Anil Pandya’s vision of being the most comprehensive and inclusive credit bureau in India. CRIF, a global Credit Information Service that christened the credit bureau as CRIF High Mark, subsequently took a major stake in the company. In India, CRIF is the pioneer in establishing a Microfinance Bureau database, which now is world’s largest Microfinance Bureau Database.
