#FinancialBytes: What is credit score, how can you check yours?
Credit score is a numerical expression that represents the creditworthiness of an individual, summarizing their credit history. It shows one's credit behavior and indicates how likely the person is to use credit responsibly. It acts as a proof to lenders how well the individual has managed their finances. From checking your credit score to improving your rating, here's all you should know about it.
What is a credit report?
Credit score, which represents one's ability to repay, is crucial for getting approvals for loans, credit cards, or other credit requests. This score is based on one's "credit report" prepared and maintained by credit bureaus. After a person takes a loan/credit card, the bank/lender periodically reports the individual's credit activities to credit information companies or bureaus that collect information and maintain "credit reports".
About the credit information companies in India
In India, there are four credit information companies (CICs) approved by the Reserve Bank of India - TransUnion CIBIL (Credit Information Bureau (India) Limited), Experian, Equifax, and CRIF HighMark. CIBIL is the oldest and most prominent credit bureau in the country that has been operational since 2000. The other three CICs were later issued licenses to operate by the central bank in 2010.
How and where can you check your credit score?
All the banks and financial companies are required to share an individual's loan/credit data with all CICs in India. Individuals can get a free credit score/report once in a year. One can check their score by heading to the websites of CIBIL, Experian, Equifax, or CRIF HighMark. Other online financial marketplaces like BankBazaar, PaisaBazaar, CreditMantri also offer free scores in partnership with CICs.
You can get one free report from each CIC
While individuals can get one free credit report from each of the CICs in a year, they can also buy additional credit reports from these companies if they need. CIBIL charges Rs. 500 for Credit Report and Score, Equifax charges Rs. 400; Experian's Credit Report+Score costs Rs. 399. While all the CICs prepare reports based on same information, their scoring systems are different.
Differences in credit scoring systems of the CICs
The scores from all the four CICs would be different as they follow their own methodology. For example, CIBIL and Experian scores range from 300 to 900, while Equifax scores individuals on a scale of 1 to 999, and CRIF HighMark scores range from 300 to 850. CIBIL and Experian scores above 750 and CRIF HighMark scores above 720 are generally considered good.
How to improve credit score and what factors determine it?
Factors affecting credit score include repayment history, amounts owed to lenders, utility ratio (amount sanctioned and amount utilized), length of credit history, healthy credit-mix (secured+unsecured loans), new credit requests. To enhance the score, one must repay funds on time, maintain low percentages of unsecured loans, avoid multiple loan applications at the same time, maintain lower credit utilization limit (avoid maxing out credit card limits).
Advantages of having a good credit score
Individuals having good credit scores can enjoy various benefits. They may have an advantage over others while availing credit from lenders such as faster loan sanctioning, lower interest rates, prepayment charges and processing fee waivers, and ease of getting new credit cards.
