When you place an application for any loan, lenders review your credit score to understand your repayment capacity. It is a 3-digit numerical representation of your credibility. A credit score ranges anywhere between 300 and 900. Moreover, lenders involving non-banking financial companies and banks may provide competitive terms like a higher loan proceed and a lower rate of interest if your score is high. This credit score is computed by 4 different Indian credit bureaus.
What’s a credit bureau?
To put it simply, there are many credit agencies that collect info linked with credit, which involves borrowings, outstanding bills, payments, and others. These details are provided to the credit information companies that evaluate the credit statements and reports for different purposes like loan sanctioning or sanctioning of credit cards. Such agencies get the details from multiple sources like lenders, creditors, debt collection agencies and public record enterprises.
The data might even be procured from telephone, utility bills, mobile bills, and various other sources. All such details are collated then into the form of a credit report. Reports can be easily accessed by you or your lenders at a nominal charge. However, such agencies do not have any role in deciding whether any loan application must be accepted or not.
What’s the purpose of credit bureaus?
The major purpose of such agencies is to evaluate the financial transactions particularly linked to outstanding loans and their repayments for companies and individuals. Depending on the study, the agencies provide ratings and credit scores. Such scores are a crucial component of the overall loan application process and depend on most financial institutions.
Every lender factors in the applicant’s credit score to decide whether they are eligible for a loan or not
Based on such study, the agencies provide credit ratings or scores. These scores are a crucial component of the thorough loan application process and are dependent on most financial institutions. Every lender factors in your credit score to make an informed decision.
Know the distinction between the credit rating agency and credit bureau
Often individuals believe that credit rating bureaus and agencies are the same. But there’s a difference between both service providers. Former offers ratings to assist you in determining the investment risk in a specific product or lending money to the organization. Ratings are provided as alphabets like CCC, BBB, AAA and much more. On the contrary, the latter accumulate info on the individuals and distribute a credit report, which consists of a 3-digit numerical representation to the lenders.
Financial institutions use the report to determine your credibility to further determine if your application must be approved or not.
List of top 4 Indian credit bureaus
Following are a few of the top Indian credit bureaus –
TransUnion CIBIL
TransUnion CIBIL (credit information bureau India ltd.) is one of the popular agencies in the country. It was introduced in 2000, and it maintains a record of 32 million companies and over 600 million individuals. CIBIL was founded by RBI (Reserve Bank of India) and later partnered with the Chicago-linked TransUnion International Inc. This agency uses information from the enquiries and accounts section to decide the credit score. Major 4 parameters that impact your credit score include credit utilization, number of enquiries, payment history, and credit mix. Moreover, low credit utilization, regular payment history, a balanced mix of unsecured and secured loans, and limited inquiries positively impact your credit score.
Experian
Experian was introduced in the year 2006, and it received the license in 2010 to operate totally in India. This agency is approved by SEBI (Securities & Exchange Board of India) and compiles the reports for companies and individuals. Experian credit score is decided based on info like loan type, loan date, current outstanding balance, defaults, and repayment history (if any).
Also, it involves any inquiries made with details such as loan type and amount. The agency collects data from banks, financial institutions, and other credit grantors.
Equifax
It was introduced in 1899 as a retail credit company and is among the 4 largest bureaus. It obtained its license to function as a credit bureau in 2010. Besides other credit scores, Equifax credit score is determined based on portfolio scores, risk scores and other scores for the individuals. Equifax uses various parameters while computing credit scores. These involve payment history, a number of accounts, account types, credit length history and available vs used credit card limit. Agency then assigns a weightage for every factor, which decides your credit score.
CRIF High Mark
It is a comprehensive Reserve Bank of India-approved bureau in the country. CRIF High Mark was started in the year 2007 and received its license to operate in 2010. The credit bureau covers commercial, microfinance and individual borrower, SMEs (small & medium enterprises) and other others. The credit score from CRIF High Mark ranges anywhere between 300 and 900, which gets computed based on specific parameters. These involve outstanding debt obligations, length of loans, number of new loan applications, credit mix and DTI (debt to income) ratio.
FAQs (Frequently Asked Questions)
What is known as a credit bureau?
Most people are aware of credit scores but often ask, ‘what are credit bureaus?’. Well, these credit bureaus, also called credit information companies or CICs, are licensed by the Reserve Bank of India (RBI) and are financial institutions. They maintain as well as collect credit-linked info of the companies and individuals. The data is utilized to generate scores and credit report, which is used by lenders to make an informed decision.
Why is there a distinction between credit scores generated by different credit bureaus?
Every credit bureau report is dependent on a unique proprietary algorithm. It uses distinct parameters to compute the credit score. Thus, your credit score might differ from one credit agency to another.
Are all credit reports offered by different credit agencies equally valid?
Even if the credit score varies from one credit bureau to another, all these are valid equally. Most financial institutions offer the same info to all the credit bureaus, which is then utilized to compute the credit score. Moreover, the 4 credit bureaus, namely CIBIL, Experian, Equifax and CRIF High Mark, are licensed by the Reserve Bank of India.
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