Credit scores are vital for those who apply for personal loans, credit cards, or home loans. Your credit score determines your creditworthiness. In India, numerous credit bureaus calculate credit scores based on an individual's credit history. Each credit bureau has its own algorithm, which can affect the score. Let us look at the different types of credit scores in India, how they work, and how to understand a credit score.
What is a credit score?
A credit score is a 3-digit number. It is calculated using information from your credit history. This information includes the number of credit accounts, repayment history, total debt, and other factors. These factors are also referred to as credit factors. The credit bureaus use these credit factors to explain your credit health in credit health reports.
What are the various credit-scoring models?
India has four credit bureaus licensed by the Reserve Bank of India: CIBIL, Experian, Equifax, and CRIF High Mark. Each credit agency has its own algorithm for calculating credit scores, which can affect the score. While all four credit bureaus are legitimate in India, their scores may not be the same for an individual.
TransUnion CIBIL, formed in 2000, is India's oldest and most popular credit bureau. While the RBI granted Equifax a licence in 2010, Experian was founded in 2006, and CRIF High Mark has been in business since 2007. Each credit agency offers a variety of products and services to both individuals and companies.
What are the different types of credit scores?
As an individual, you can explore the credit scores generated by the four credit bureaus. Let us look at the types of credit score by credit rating agencies:
- CIBIL Score: The CIBIL Score is arguably the most prevalent credit score in India. It is created by the Credit Information Bureau of India Limited (CIBIL). This score goes from 300 to 900, with 750 and above considered good. The CIBIL Score is calculated based on an individual's credit history, which includes credit card usage, loan repayment history, and other financial information. Banks and other lending institutions frequently use the CIBIL Score to assess an individual's creditworthiness.
- Equifax score: Equifax is another credit bureau in India that provides credit scores. Its score runs from 300 to 900, with 750 and higher deemed good. Equifax, like CIBIL, bases its score on an individual's credit history.
- Experian score: Experian is another credit bureau that computes credit scores. Its score runs from 300 to 900, with 750 and higher considered best. The Experian score is based on an individual's credit history, including loan repayment and credit card activity.
- CRIF High Mark score: CRIF High Mark is another credit bureau in India that calculates credit scores. Its score runs from 300 to 900, with 750 and higher deemed good. The CRIF High Mark score is calculated using an individual's credit history, including loan repayment and credit card usage.
How to read a credit score
In India, credit scores vary from 300 to 900, with 900 being the highest possible. Let us look at what various credit score ranges mean.
- 300-549: A credit score in this range is considered low and shows that the individual has been late in paying EMIs, credit card bills, or has defaulted on one or more loans.
- 550-649: A credit score between 550 to 649 is considered average, indicating that the individual has struggled to keep up with loans or EMIs.
- 650-749: A credit score in this range is regarded as good, indicating that the individual is doing the right things in most cases. Individuals in this score range are more likely to be considered for credit offerings such as loans and credit cards.
- 750-900: A credit score in this range is considered excellent. It indicates that the individual has a strong repayment history, makes credit payments on time. Individuals in this score range are more likely to qualify for loans at the best interest rates. They may also qualify for the best credit cards in the market.
In general, a credit score of 750 and above is considered very good. Lenders may use credit scores from different credit bureaus while evaluating your applications for credit. What this means is that you will be able to get access to credit options such as loans and credit cards. Lower credit score may limit the opportunities of getting credit.
You need to be aware of your credit score and credit health. A credit report is used by lenders to learn more about an individual's credit history and condition. The higher the score, the better the chances of obtaining loans at competitive interest rates. Usually, the credit bureaus provide one free Credit Health Report. You may have to pay a fee for more credit reports.
Bajaj Finserv provides Credit Pass, powered by CIBIL, to help you manage your credit health. You can get your Credit Pass at a nominal cost and get access to useful insights and tools. Get a credit health dashboard with real-time insights, monthly CIBIL Score checks, and more. Monitor the shifts in your score as you manage your credit responsibly to improve it.
