Chapter 1: What is a Credit Score?
A credit score is a three-digit number that determines how ‘credit-worthy’ you are as an individual. It is used by lenders to estimate how likely you are to return their money on time if they give you a loan. To avail loans easily and at low-interest rates, it’s essential that you maintain a high credit score. A low credit score severely limits your purchasing power.
Credit scores are published by credit bureaus. Credit bureaus are companies that collect credit information and create a credit report for each individual. There are currently four major credit bureaus in India that are approved by the RBI. They issue their own credit scores:
- CIBIL Score
- CRIF Score
- Experian score
- Equifax score
All four credit scores use different algorithms to calculate the credit score. Hence, the credit scores for a person may vary slightly depending on the credit bureau that has issued it.
1. What is CIBIL?
CIBIL, Central Credit Information Bureau India Limited, is India’s first (and the most popular) credit information bureau that maintains a record of all credit-related activities or transactions of individuals. It maintains credit records of 600 million individuals and 32 million businesses. CIBIL was acquired by TransUnion( an American credit rating agency) in 2017 and is now known as TransUnion CIBIL.
CIBIL performs the following functions:
- For individuals, it prepares credit reports and issues a credit score
- For businesses, it provides comprehensive risk management tools for lending
What is CIBIL score?
CIBIL Score is the credit score issued by CIBIL (India’s first credit bureau) and ranges between 300 to 900. The score is derived using information from all past credit transactions and loans. A score above 750 is considered to be an excellent score.
CIBIL issues a credit report which contains a person’s loans and payment history across all the credit institutions over a period of time. A Credit Information Report, or CIR, does not contain information about savings, fixed deposits, and investments. It simply contains information related to your credit usage.
To get all information about your credit score, make sure to read your Credit information Report (CIR) carefully.
A CIR contains:
- Personal information
- Contact details
- Employment details
- Account information
- Access information openly available to banks and other financial institutions
Studying your CIR regularly helps you identify any red flags and inconsistencies. It helps you become more prudent about your expenses and enables you to make better financial decisions.
Here are some important things to know about your CIBIL credit score
- You can get a loan even with a low credit score. Different banks have different credit score cut-offs for loans. If you clear the cut-off you become eligible for a loan. However, the interest rate will be higher for low scores.
- Your CIBIL score will be different from credit scores generated by other credit bureaus.
- When you directly contact CIBIL to check your credit score, it’s called a soft inquiry. When banks and other financial institutions ask CIBIL about your score, it’s called a hard inquiry. Numerous hard inquiries in a short period of time can hurt your credit score.
- Even if you have multiple accounts, but pay your bills on time, your credit score will not decrease.
- Lastly, you can get a credit report once a year free of charge.
2. What is a CRIF credit score?
CRIF Highmark is one of the four major credit bureaus in India, similar to CIBIL. It specializes in micro-finance, rural and agri space. It is the world’s largest microfinance database. A CRIF score is one of the four types of credit scores that also ranges from 300-900.
Here are some facts about CRIF credit score:
- CRIF produces two types of credit scores – one for individuals and one for businesses. Both range from 300-900. The closer your score is to 900, the better your chances are of getting loans.
- A CRIF Report costs Rs. 399 as compared to CIBIL, which costs Rs. 500 after the first free report.
- CRIF provides special microfinance credit reports and market insights along with credit scores for commercial and small businesses.
3. What is an Experian credit score?
Experian, one of the top 4 credit agencies in India, also has a score ranging from 300 to 900. A score of 700+ is considered ideal.
Here are some facts about Experian credit score:
- Experian gives personal credit reports, consumer reports, commercial reports, international business reports, and Experian information reports.
- Experian has launched a Credit insight program that provides credit education, personal assistance and also cross-selling of other financial products.
4. What is an Equifax credit score?
The Equifax credit score ranges from 280 to 850 compared to scores from other bureaus, which range from 300 to 900. The Equifax credit score can also be used to find your CIBIL and Experian credit scores.
Other than this, this type of credit score is similar in nature and function to CIBIL, CRIF and Experian credit scores.