Who Issues Credit Ratings and Credit Scores in India?

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 credit 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

Experian Credit Score Range

Equifax Credit Score Range

CRIF High Mark Credit Score Range

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?

1. 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. 
2. 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. 
3. 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.
4. 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.