Credit scores and credit ratings are generally calculated by the Credit Reference Agencies, or
Credit Bureaus. Each bureau has a different method for calculating credit scores. However, all
the credit bureaus take your personal and financial information into account while calculating
credit ratings and credit scores.
There are four (4) credit bureaus in India, namely – CIBIL (Credit Information Bureau (India)
Limited), Experian, Equifax, and CRIF High Mark. Each credit bureau has a different process for
calculating credit scores, so there isn't any "thumb rule" you can rely on. Whatever the number,
the general mantra is that better cindicate a higher risk of lending. When you apply for any type of credit product, your creditredit scores represent lower risk and lower credit scores
indicate a higher risk of lending. When you apply for any type of credit product, your credit
score is calculated based on your previous credit history to help the lender understand what
type of borrower you are.
How does Credit Ratings and Credit Scoring Work?
Lenders utilise the information provided by credit reference agencies to understand what type
of borrower you will be if they extend credit to you. Your credit file is just a collection of
information about you that represents your credit history and can help your lender determine
how risky a borrower you are.
The four (4) Credit Reference Agencies have different scoring models, and below is a snapshot
of each of the credit scoring ranges followed by the credit bureaus:
CIBIL Credit Score Range
CIBIL Credit Score Range | Credit Rating |
---|---|
750-900 | Excellent |
650-750 | Good |
550-650 | Average |
300-550 | Poor |
Experian Credit Score Range
Experian Credit Score Range | Credit Rating |
---|---|
850+ | Excellent |
750-850 | Very Good |
650-750 | Good |
500-650 | Low |
300-500 | Very Low |
Equifax Credit Score Range
Equifax Credit Score Range | Credit Rating |
---|---|
800-850 | Excellent |
740-699 | Very Good |
670-739 | Good |
580-669 | Fair |
300-579 | Poor |
CRIF High Mark Credit Score Range
CRIF High Mark Credit Score Range | Credit Rating |
---|---|
750-900 | Excellent |
650-750 | Great |
500-650 | Low |
300-500 | Very Low |
What are the Factors Considered by Credit Rating Agencies to Calculate your
Credit Ratings and Credit Scores?
A credit score is composed up of data gathered by credit bureaus and used by lenders and
financial institutions to assess your eligibility to borrow a given credit product. But what
information does a lender use to calculate your credit score?
a) Personal Details : They use the details you provided on the credit application
form. This is likely to include all the necessary information about your income,
employment situation, address, and so on that your lender needs. Although some of
these facts are merely formalities, others, such as your salary, can influence how
creditworthy you appear, simply because a lower income means you are more likely to
have difficulty repaying the credit.
b) Repayment History : Your credit score is influenced by your repayment history,
as lenders try to anticipate how likely you are to repay any debt that you have or ever
had. That is why it is critical to make timely repayments on your credit cards and loans.
c) Existing/Past Debts : Any previous credit agreements will be taken into
consideration as well. Existing credit cards, and personal loans are included. Your credit
utilisation, or how much of each credit facility you use, is a consideration that could
affect your credit score, since different lenders look for different degrees of credit
utilisation when determining lending requirements.
d) Credit Applications : You leave a trace every time you attempt to apply
for credit. Every time a lender, employer, insurer, landlord, or debt collection agency
examines your credit report, they leave a trace. If you receive a lot of inquiries in a short
period of time, it may appear that you're desperate for credit or having trouble paying
your bills.
When you apply for any type of credit product, a lender or financial institution is not required
to inform you which, credit reference agency they are planning to use for assessing your
creditworthiness. Banks and other lenders freely share data, which means they have access to
financial information about you from sources other than your credit report. It is also worth
noting that some lenders have their own scoring systems that they utilise instead of or in
addition to those of a credit reference agency.
Credit rating and credit scoring models are far more transparent than it once were, and
customers now have more control and insight over their credit reports. Before applying for a
credit, check your credit score to make sure everything is aligned so that your credit application
doesn’t get rejected. It is critical to ensure that the credit information on you is accurate and up
to date. If you are having problems obtaining credit, you can improve your credit score over
time by taking appropriate actions.