Tuesday, March 15, 2016

What is a Credit Score?

 

 

Every time you enquire about taking a credit card, personal loan, home loan or any other financial asset product, you will hear about credit score (or CIBIL as its popularly called in India). So what is this credit score and what part does it play in helping the banks make a decision on your loan application?

 

Your credit score is an indicator of your financial health and of your repayment pattern for previous loans or credit cards that you might have, which inturn gives banks and financial instution the ability to judge your credit worthiness. It captures your complete credit history including all the loans or credit cards that you may have taken in the past or currently servicing. CIBIL is the largest credit bureau in India and CIBIL score is the defacto standard in the industry. Experian, Equifax are other organisations which provide a credit score.

 

Every bank which is a part of CIBIL, reports the entire data for its loan customer, their repayment schedule, etc on a regular basis to the bureau. CIBIL in turn collates this data from various banks and executes its proprietary algorithms to provide a score to every individual. If you have defaulted on a loan payment or credit card dues in the past, it will reflect in your credit score/report and inturn reduce your chances of getting a loan in the future. So basically if you had in the past defaulted on a loan payment with say ICICI bank, the information will be available to any bank that you might approach for a loan (although the bank name will be masked) Although every bank has its own cutoff, a CIBIL score of 750 and above is generally considered good. You can check your individual CIBIL score for a small fee on their website.

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