A Credit Score is a number that is based on an individual’s history of credit behaviour. It reflects his or her credit worthiness. There is no Universal Credit Score. Each Credit Information Company (CIC) has its own method of calculating the Credit Score which is not disclosed to the public. According to CIBIL, the largest CIC in India, 79% of the loans approved are for individuals with a score greater than 750. The CIBIL TransUnion Score lies between 300 and 900.
A high Credit Score may get the desired attention by the Credit Institution approached by the applicant. But he will still need to satisfy other eligibility criteria to get that loan sanctioned. A low Credit Score by a CIC hence doesn’t lead to blacklisting. This means just because one bank has rejected you, it doesn’t automatically mean others will. Though after a rejection, it’s recommended to check your Credit Information Report (CIR) for errors before applying again.
You can also obtain the Credit Scores and CIR’s from the CIC itself. In order to get a CIR from CIBIL you need to pay Rs. 154/- and you can get your CIBIL TransUnion Score + CIR for Rs. 470/-.
A recent RBI Committee report also recommended that customers in India be provided a free copy of CIR once in a financial year. (Update March 2018: CIBIL score report is now available for free once a year to every individual)
This will promote financial awareness. It is a practice in the West. However, this may be some time away in India. Credit Bureaus in the West have been in existence for a couple of decades. In India, CIC’s are in the investment phase and have not attained profitability. ‘Credit Bureaus’ and ‘CIC’s’ are terminologies that can be used interchangeably.
What are the benefits of knowing your Credit Score?
The Credit Information Report (CIR) and Credit Score provided by a CIC contain comprehensive Credit Information regarding the credit history of the applicant. The following are the benefits of knowing with your Credit Score:
a) Credit Information obtained from the CIC’s, help lenders identify consumers who are likely to be able to pay back their loans more quickly and economically. This translates into faster loan approvals for consumers.
b) An individual with a higher credit score can bargain with the bank for better lending terms, since he is perceived as a responsible loan applicant.
Who can access your Credit Score?
Your Credit Score can be accessed by many institutions. Membership of CIC’s is voluntary and according to the CIBIL website the following institutions are eligible to become members:
Credit Institutions (banks, RRBs, Co-operative bank, NBFC, Public Financial Institution, Housing Finance Institution etc. companies engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner or any other institution which the Reserve Bank may specify, from time to time, for this purpose)
Companies providing cellular or telephone services
Credit Rating Agencies
Asset Reconstruction Companies
It has been recommended by a committee of RBI that all above institutions should provide data to all CIC’s so that a comprehensive credit repository is built. However this suggestion is yet to be implemented. Once it is implemented, your Credit Information could play a role in your obtaining a life insurance policy or obtaining an additional telephone connection.
Be Empowered. Get to know your Credit Score.
Cheers to a healthy, financially-stable and comfortable life!
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