QSG | Credit Scores & You!

When lenders evaluate your loan or credit card application, they look at specific parameters to ensure less risk of non-repayment. One such parameter is your credit score. Higher credit scores are more likely to be approved by lenders for loans or credit cards, while lower credit scores are more likely to have applications rejected.

In India, the Reserve Bank of India (RBI) has given permission to four credit bureaus. The oldest and most well-known one is TransUnion CIBIL (formerly Credit Information Bureau India Limited). Infact, such is their presence across the Indian financial sector that the term "Credit Score" in India has been generalised and often referred to as CIBIL.

What Is Credit Score?

A credit score is a three-digit figure that indicates credit worthiness of a borrower to the lenders, such Banks, Card Issuers and NBFCs etc. The higher a Credit Score, the more responsible the borrower appear in the eyes of the lenders. Credit Score thus signify how well a person has handled debt in the past which may include credit card payments, personal loans or vehicle loans, home loans and mortgages. Factors used to calculate a Credit Score include repayment history, types of loans, length of credit history, debt utilization, and whether any new accounts have been applied for. In simple terms, Credit Score informs the lenders of the degree of risk associated with lending to a specific individual / company as well as that entity's likelihood of timely loan repayment and therefore plays a key role in a lender’s decision to offer credit and the applicable terms.

A borrower's financial situation can be greatly impacted by their credit score. A higher credit score allows the individual borrower to also receive better interest rates, which can result in long-term financial savings. On the other hand, lenders tend to consider borrowers with credit scores of 700 or higher favorably, which could lead to a cheaper interest rate. Scores over 800 are regarded as exceptional. Every creditor establishes their own lending standards and credit score ranges.

The credit ratings calculated in India by credit score companies (bureaus) range between 300 and 900. Lenders often view a score above 750 as good and the likelihood of obtaining new credit increases with higher credit score. Although there are numerous credit-scoring models and score ranges, they generally fall into the following groups:

TRIVIA:
The credit score model was created by the Fair Isaac Corp., now known as FICO, and is used by financial institutions.

Range	Rating	Probability Credit Approval	Definition
801-900	Excellent	57.60%	Low-risk - No payment defaults.
750-799	Good	22.80%	Strong credit history with timely payments.
700-749	Average	09.70%	Balanced credit history with fair credit management.
650-699	Poor	05.20%	High risk - Missed payments or High credit utilization.
300-650	Very Poor	04.70%	Bad credit history - High defaults and difficulties in obtaining credit.

What Is An Acceptable Credit Score?

Lenders usually consider a Credit Score above 700 to enter into an association with the borrower (both individual and companies included), since it indicates the borrower's ability to repay loans or pay credit card bill outstanding amounts as and when due. Some times, an exception to this general rule may be considered, at the sole discretion of the lenders.

The credit bureau determines the person's credit score based on the information from transactions. When a lender requires to check the credit rating of a borrower, they can approach credit bureaus for assistance. When contacted, the credit bureaus extract details in order to create the person's credit report based on which the borrower's credit score is derived at.

How Credit Score Is Calculated?

Credit bureau utilise the credit-related financial data gathered from financial institutions, lending institutions, data gathering organisations about people and organisations. When a bank or lender requires to check the credit rating of the borrower, they can approach credit bureaus for assistance. When contacted, the credit bureaus will inquire for more details in order to create the person's credit report, which generates the borrower's credit score.

The credit bureau determines the person's credit score based on the information from transactions. Information about any delays in payment of EMIs or credit card outstandings are reported based on the which Credit Bureaus update the credit score on a monthly or quarterly basis.

Payment History: Payment history defines whether bills raised were paid on time. It takes into account the number of late payments, and the length of duration they were delayed for. Lenders usually prefer zero or minimal delayed payments.

Credit Utilization: Calculated as a percentage of amount already consumed out of total credit available to the borrower. Lenders usually prefer low credit utization.

Credit Age: The length of credit history available for the borrower provides more data to determine payment history, hence borrowers with older credit history are considered less risky. Lenders usually prefer applicants with old credit history compared to new applicants.

New Applications: High number of new applications for loans or credit cards etc. shows the borrowers' desperation to get credit. Lenders usually prefer low number of new credit applications.

Credit Mix: Different types of credit such as car loans or home loans or credit cards define the borrower's ability to manage debt. Lenders usually prefer a balanced credit mix.

ALERT:
Credit card account where the minimum amount due, as mentioned in the statement, is not paid fully within 90 days from the payment due date given in the bill, will be treated as a non-performing asset. It will also affect the credit rating of the card holder.

How Credit Score Can Be Improved?

A high credit score score apart from getting you better credit terms and faster approvals can also save your money over the debt period in terms of lower interest rates.

Pay In Time: Pay EMIs and outstanding dues in time and without any delays.

Pay In Full: Pay outstanding dues in full. Save on as high as 45% interest on balance outstanding and any negative impact on Credit Score.

Maintain Low Credit Utilization: Try not to utilise above 30 per cent of your Credit Limits and make adhoc repayments if at all high value transaction becomes necessary.

Increase Credit Line: The easiest way to increase the Credit Line is by communicating with the Credit Card Issuer / Bank and request for enhancement of Credit Limit. Alternatively, reduction of current debts can also be considered. Applying for newer Credit Cards can bring additional Credit Limits but should be considered judiciously since each Credit Enquiry or Application impacts the existing Credit Score.

Retain Credit Cards: Make an attempt to retain as many credit cards, even if these have not been used actively to maintain both the Credit Line as well as the Credit Age.

Check Credit Score Regularly: Make it a habit to check Credit Score regularly to take an informed decision as and when requried.

Read governing Terms and Conditions: Instead of being taken by a surprise, read the terms and conditions of your debt instrument along fees and penalties applicable on defaults.

What Is a Credit Bureau?

A credit bureau gathers and keeps track of a variety of credit-related data about people and organisations. It obtain data from financial institutions, lending institutions, data gathering organisations and collates information such as credit card usage, loans obtained, overdraft privileges, etc. Information on utility bill payment history, income tax records, and other financial activities may also be included. The goal of this information gathering and analysis is to build a thorough profile of a person's or company's creditworthiness, including repayment patterns, default histories, and debt-to-income ratios.

Which are the prominent Credit Bureaus in India?

TransUnion CIBIL

TransUnion CIBIL has an extensive database of credit data, including credit histories, payback patterns, and credit scores. Its credit reports and scores assist lenders in determining creditworthiness and making wise loan decisions. Additionally, TransUnion CIBIL provides services including CIBIL Rank, which assigns a ranking based on creditworthiness, and CIBIL Market Insights, which provides analytical insights on credit trends.

The CIBIL Report - Score

CIBIL score is the first section in the Credit Information Report (CIR). Lenders refer to this score to evaluate the loan application. CIBIL score ranging between 300 and 900 is calculated on the basis of information present in "Account Information" and "Enquiry Information" sections.

Sometimes, CIBIL score may be displayed as "NA" or "NH", which may be baecuase of one of the following being true:

Applicant have only add-on credit cards and no credit exposure.
Applicant do not have any credit activities in the last few years.
Applicant does not have a loan or mortgage which can define a credit history.

The CIBIL Report - Personal Information

The second section contains applicant's personal information like Name, Date of birth and Gender as registered with the CIBIL repository. It also contains identity information such as PAN, Passport number, Aadhaar number, Driver’s license number, Voter ID number, and any other Government issued valid and acceptable Identity Proof as reported by lenders.

The CIBIL Report - Contact Information

The contact information section contains Address, Mobile or Telephone number and Email address as captured and shared by lenders. The address category includes information such as Office address, Residential address, Permanent address and Temporary address. The credit report contains up to four addresses, telephone numbers and email addresses as provided by lenders in the past, in addition to the most recent contact details.

The CIBIL Report - Employment Information

The employment information section covers the details of applicant's occupation and income reported at the time of opening a credit facility, and shared by the lender with CIBIL.

The CIBIL Report - Account Information

CIBIL score is actually based on this crucial piece of information about the applicant. This section displays details of various loans, mortgages and credit cards availed by the applicant, as reported by the Lender. The section comprises of information like Lender's name, Type of credit facility, Account number, Type of ownership, Date of start and end, Date of last payment, Credit Limit or Loan amount, Outstanding balance, and record of 36 month-on-month of payments.

The 36 month payment record is the crucial element on which most part of the CIBIL score is based on. In the monthly cells reflecting payment status only "000" or "XXX" are positive. Apart from these two indicators, all other indicators have a negative impact on the CIBIL score, as these reflect the Days Past Due (DPD) for the corresponding month/s.

"000" indicates there was NO delay in payments.
"XXX" indicates no payment information shared by the Lender.
"030" indicates payment is delayed by 30 days. 060 or 090 also indicates the number of days payment is delayed.
"STD" indicates payment were delayed but paid within 90 days and therefore "Standard". While STD is also negative anything else implies worse because lenders term DPD over 90 days as NPA.
"SUB" indicates dues were paid after 90 days and account remained NPA for <12 months, therefore "Sub-Standard".
"DBT" indicates account remained at SUB for a duration of 12 months and therefore "Doubtful".
"LSS" indicates an account where dues are unrecoverable and therefore identified as "Loss".

DPD information, once reported, can be changed but the not before a month of publishing since lender's usually share information on a set date of the month. Sometimes, due to inaccurate information shared by the lender, Written-off status may appear on your CIR against a credit. This status has negative consequences for the CIBIL score and it indicates that the applicant cannot be trusted with money in future. However, this can be rectified by raising a complaint with CIBIL.

The CIBIL Report - Enquiry Information

The enquiry section includes information about recent enquiries made by the lenders corresponding to the credit applications made. Every time a new application is submitted about a credit facility, the lender enquires about applicant's credit history and this enquiry is recorded. The section includes data such as the name of the Lender, Date of enquiry, Type of the credit facilities applied for, and the Credit check amount.

Download CIBIL report through banks and official partners or subscribe directly.

Period	Cost
Monthly Report	₹550
6 Months Report	₹800
12 Months Report	₹1,200

Experian

Another well-known credit bureau operating in India is Experian. It gathers information about credit from a variety of sources and produces credit reports and ratings. Experian's credit reports give a thorough account of a person's credit history, and their credit score indicates how creditworthy they are. In order to help organisations manage credit risk, it also provides fraud-detection services, identity verification systems, and analytics.

Download Experian's credit report completely free of cost. Unlimited access throughout.

Equifax

A multinational provider of credit information, Equifax also has operations in India. It creates credit reports and scores for both borrowers and corporations using credit data collected from various sources. In order to assist lenders in making wise lending decisions, Equifax offers credit information solutions. Additionally, it provides fraud protection and risk management services to help organisations reduce credit risks.

Download Free credit report for the first time and subscribe to credit report & simulated scores.

Period	Cost
One Time Report	₹250
Quarterly Reports	₹450
Annual Reports	₹900

CRIF High Mark

CRIF High Mark offers thorough risk management services and credit information as well as services like portfolio monitoring and fraud protection. It gathers and examines credit information to provide credit scores and reports. While the credit score indicates a person's creditworthiness, the credit reports from CRIF High Mark offer thorough insights into a person's credit history.

Download CRIF High Mark personal credit scores for Individuals

Period	Cost
Monthly Reports	₹399
Half Yearly Reports	₹580
Annual Reports	₹900
Business Credit Report	₹3,700

Consumer Dispute Resolution:

Initiate a dispute online for inaccuracies, account ownership and duplication of information that reflect in your Credit Score Report.

Credit Bureau	Grievance Handling Process
Transunion CIBIL Refer Consumer Dispute/Grievance Redressal/Resolution Process/Policy	Login to CIBIL account. Go to Credit Reports section. Navigate to respective sub-section & click on “Raise Dispute”. Select the relevant section which you want to dispute. If disputing Ownership/Duplicate entry –> Select Dispute Type If disputing Data Inaccuracies –> Enter correct value for the disputed field/s. Complete the online Dispute form and SUBMIT. Raise disputes on Company Credit Report (CCR) here.
Experian Refer Consumer Grievance Redressal Policy (ECICI)	Login to EXPERIAN account. Navigate to Dispute –> Raise a Dispute Fill in the following details Credit Report Details (15 digit Experian Report Number (ERN), Unique Transaction ID (UTI) mentioned in the top right-hand side of your Experian Credit Report) Dispute details (Credit / Personal details to be corrected). Click on Submit. After Submitting, you can also track the status of the dispute through “Dispute –> Track Dispute”
Equifax Refer Dispute Resolution Process	Report your concern at Online Dispute Form or Fill in the Dispute Resolution Form. Attach a self-attested copy of Valid Identity Proof and Address Proof. Send the above documents through Courier/Regular Post/ Speed Post on address provided.
CRIF High Mark Refer Consumer Grievance Redressal Policy	Login as New User or Existing CRIF High Mark member. Enter your details for the account mentioned in the CRIF report. Click on “Raise a Query” tab. In “Raise a Query” select the dispute category. Enter the details of your query, Correction required. Click on “SUBMIT” button
List of Documents and Relevant Guidelines	List of identity proof documents (Any one): Copy of voters ID card, Copy of valid driving license, Copy of valid passport, Copy of PAN card. List of address proof documents (Any one): Copy of electricity bill, Copy of landline telephone/mobile telephone bill, Copy of credit card / savings / current account / other bank account statement, Copy of gas utility bill, Copy of ration card. Guidelines for all the above documents: All photo copies should be self-attested. Please ensure that ID card numbers and photographs are clear and visible. All bills should be within 3 months from the current date. All ID proof documents with validity dates should be valid at the time of sending the request. The name and address on the documents should be of the requestor The address should be clear and visible

Bottom Line:

Credit Score can impact finances significantly since a Good Credit Score can result in better credit terms and lower interest rates thus resultant savings.

CHECK Credit Score regularly,
AVOID actions which can adversely impact Credit Score and
INITIATE actions required for Credit Score enhancement.

Your Views:

Please feel free to share your thoughts, opinion, suggestions, feedback in comments below.

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