Credit Score is an integral part of our financial life. Given the limited capital available to an individual, access to loans and other credit facilities becomes increasingly important, to fulfill ever-growing needs and aspirations. Hence, approaching a bank or Non-Banking Financial Company (NBFC) or an online lender for a loan or a credit card may become unavoidable for everyone at some point in time.
When you apply for a loan, the lender pulls your credit score and report to see your past credit activities, whether you are an eligible borrower. The three-digit credit score plays an important role in getting you the credit you want at better rates. India has 4 retail Credit Bureaus: CIBIL, Equifax, Experian and Highmark, that provide the credit score. A Credit Bureau is a data repository that receives and maintains data of individuals and entities. Credit Bureau data coverage in India is increasing rapidly every year. Lending institutions dip into this database for assessing your creditworthiness.
What does a score look like and what is a good score?
A credit score is a three-digit number within the range of 300 and 900. It is a numerical measure of a person’s credit worthiness and is based on credit history. The higher the score, the easier it is to get a loan or a credit card approved. Any score of 750 and above is considered as ideal and you will qualify for various credit cards and loans, at the lowest possible interest rates.
What information does a credit report contain?
A credit report is a summary of your credit history, including the types of credit accounts you’ve had, your payment history and certain other information such as your credit limits.
Credit Reports are generated by credit bureaus. A typical credit bureau report consists of four sections: Credit Score, Personal Details, Account details and Inquiries.
Will my credit score be the same across different credit bureaus?
Every credit bureau in India uses its own scoring logic to generate credit scores. Individual credit bureau scores can vary from one bureau to another (depending upon the scoring logic). However, these have to range between 300 and 900.
What should I do if there are errors in my credit report?
A large number of credit reports have errors. An error can lead an underwriter to reject a loan application on the basis of a faulty credit report. It may result, at times, in higher interest rates getting charged. It is, therefore, important to have such errors corrected as soon as possible. If you find any inaccurate information in your credit report, you can raise a dispute with the concerned bureau and if you are not satisfied with the action you can lodge a complaint with the banking ombudsman’s grievance cell.
How often does my credit score get updated?
Broadly speaking, your credit scores are likely to change every time the credit bureau receives new information about your credit profile. This can happen once a month or every 45 days.
What makes the system foolproof for lenders?
Let us consider an example: Mr. Rajat took a home loan from ABC Bank and had been paying his EMIs in a timely manner. Simultaneously, he also took an auto loan from XYZ Bank, but defaulted on the last few payments. Mr. Rajat now applies for a personal loan from ABC Bank assuming that since he has paid his home loan EMIs with the bank in a timely manner, he would be granted a personal loan without any trouble. However, he is not aware that ABC bank obtains a credit report/ score from CIBIL, where he shows up as a defaulter with another bank. This could either result in a rejection of his personal loan request or the bank might charge him a high rate of interest.
Is there any benefit of a good score to me as a consumer?
The advantages of a good credit score are numerous, including low-interest rates on loans, greater chances of loan and credit card approval, higher limits on credit cards, and more negotiating power with banks/lending institutions.
Credit Triangle is a one-stop solution for all your credit and finance needs. We help you with credit health management, repair and improvement.