Your Credit Score is computed by Credit Information Companies. There are four companies in Indian which do the job– CIBIL TransUnion, Experian, Equifax and High Mark.Let’s unveil the mystery around how these companies compute your score.
When you make a transaction—the one that is relevant to determine your score—banks send details about it to all four credit bureaus. To send details to all credit agencies is a mandate by the RBI. Essentially, banks keep Credit Information Companies up-to-date about your monetary habits. If a bank needs to check your Credit Score, they can approach any one of the bureaus. It doesn’t matter which one because all will have the same score for you– all four are equally authoritative and on par with each other.
After receiving information from the bank, credit bureaus get down to the task of collecting more information about your financial habits from other banks and financial institutions. The credit bureaus then processes this information to formulate what is called a Credit Report.
Now, what is a Credit Report? A Credit Report is your financial marks card. It contains your Credit Score. It’s wiser to check your score from time to time.
Why Should I check my Credit Score?
It is very important that you keep a close eye on your Credit Score. It is the best way to gauge your chances to get a line of credit. Another reason why you should track your score is to know if it dips, or if an error has been made by credit agencies while calculating your score. This will help you make timely amends.
Do the Four Credit Agencies Compute Scores Differently?
Though the processes followed to compute your score might differ from agency to agency, your Credit Score calculated by all will be the same. This is because banks intimate the relevant information to all four agencies. Therefore, no matter which agency a bank picks to check your Credit Score, there will be no major discrepancy in it.
Of the four agencies, CIBIL, however, is the most popular since it was one of the first Credit Information Companies to start operations in India. This has fuelled the notion that CIBIL Score is more accurate than a score from other agencies. This, however, is not true. Banks give equal weightage to scores from all four agencies. Equifax, Experian and High Mark Credit Scores are as good to banks and other financial institutions as CIBIL Score.
Loan Qubes has tied up with Experian, which means that we can help you check your Credit Score for free. Otherwise, it costs a few hundred rupees.
Isn’t CIBIL the Deciding Factor in a Loan?
Though many believe this, it’s not true.
All Credit Information Companies, including CIBIL, create your Credit Reports which tell banks about you credibility. Second, CIBIL and the other credit agencies do not entertain requests from individuals to make changes to financial details in Credit Reports. Changes are incorporated when banks provide relevant information to these agencies. This ensures that information in your Credit Report is legitimate. After all, your Credit Score is one of the most important factors considered by banks when deciding about your loan or Credit Card application. Your Credit Score also determines the interest rate banks chalk up for you.
So make sure that you score big on this one!
Why is Loan Qubes Giving me my Credit Score for Free?
Loan Qubes feels that you should always be in complete command of your personal finances. In order to help you with this goal, we have made provisions for you to check your Credit Score for free. Knowing your Credit Score before applying for a loan can help greatly.
If you have a good score, you can be rest assured that your loan or Credit Card application will be processed without any hassle. You can even leverage a good score to ask your lender bank for better rates of interest and additional benefits. On the other hand, seeking credit with a poor score will further lower your score. Let’s not even imagine getting approval for a credit line. Hence, check your Credit Score before you apply for a financial product. Work up the score if it’s not in the acceptable range.
It depends on the kind of enquiry being made. There are two types of enquiries – hard and soft enquiry. Hard enquiries send your Credit Score down by a few points, while soft enquiries do not impact your Credit Score.
An enquiry made by an individual is called a soft enquiry. Loan Qubes will make a soft enquiry on your behalf when getting your Credit Score from Experian. Hence, this will not impact your Credit Score in any manner. Moreover, checking your Credit Score on our website is free!
TIP: It’s wiser to check your Credit Score from time to time so that you stay in the know. Always check your Credit Score before applying for a loan/card. You will know whether your score will tide you over or if it needs fixing.
A hard enquiry is when a financial institution checks your Credit Score to take a decision on your credit application. Every time you apply for a loan or a Credit Card, the lending institution checks your score. Each time a bank checks your score, your score will dip by a few points.
TIP: If you are applying for a loan or a Credit Card, do not apply to many banks at the same time. Too many enquiries will hurt your Credit Score
It is understood that having high balances on your credit cards can significantly reduce your credit score. Apart from that, there are several other factors that can hurt your credit score:
When you work on improving your credit, you should be very patient, so as to not get discouraged. Credit scores are calculated from your credit report. When you request for the score from multiple credit reporting bureaus, you may see a slight variance in the figures. This is fine, as long as the difference is not massive.
In order to understand how your credit score changes over time, you should know how often there will be updates to your credit report. Lenders/creditors usually report your credit information (both positive and negative) to credit bureaus once a month. So, technically your credit scores can change a little each month, based on the information that is updated.
Most of the changes in your credit score happen incrementally. Although you would not see changes instantly, over a period of time this can add up to a considerable amount.
However, there are certain factors that could instantly have a huge negative impact on your score. This includes a delinquency, i.e., a significantly late payment such as a 30-day delay on a credit.
Another big influence is the credit utilisation ratio. This refers to the amount you owe as debt as opposed to your credit limit. So, an increase in credit card debt will cause your credit utilisation ratio to rise, which in turn drops your credit score.
Consider another scenario in which you pay off all your credit card debts in one go. Your credit utilisation ratio will fall in this case. This would lead to a temporary hike in your credit score.
A bank or lender would check your credit score or report to review your credit management skills, based on the review, a lender may or may not give you a credit. It is advisable to keep an eye on the credit score before applying for a credit card or loan. If you have a poor credit score and you keep applying for credit, every reject will further lower your score.
A good credit score will empower you with the ability to negotiate the interest rates. The banks or lender would like to offer a credit line to someone with a better credit score.
Credit bureaus in the country compute credit scores after considering several factors such as credit history and repayment behaviour. There are total of four credit bureaus in the country viz – TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. All these credit bureaus are licenced by the Reserve Bank of India (RBI). The financial institutions in the country send credit details of an individual on a monthly basis to credit bureaus. Each credit bureau has their own algorithm and method of calculating credit scores. Below are five factors that are taken into consideration at the time of calculating the credit score:
Credit history is one of the most important factors that affect your credit as it accounts for 35% of your total credit score.
The credit usage is the second biggest factor that comprises your credit score. It accounts for 30% of your total credit score.
The age of the credit accounts for 15% of your credit score. If you have handled your credit well and served the loan for a longer period by making timely payments, then it will positively affect your CIBIL score.
The types of credit present in your credit score accounts for 10% of your credit score. It is better to have a good balance of secured as well as unsecured loans in your credit history. A mix credit helps to boost your credit score.
Credit inquiries account for 10% of your credit score and therefore you should not apply for multiple credits at the same time.
The credit score is updated on a monthly basis based on the relevant information provided by financial institutions. It is advisable to keep an eye on the credit score to determine your financial credibility while applying for a loan or a credit card. It will help you in avoiding the situation where your credit application are getting rejected due to a poor score. By monitoring the score on a regular basis will help in identifying mistakes and correcting errors before they are too late.
When you are obtaining your credit score or report, it is considered to be a soft inquiry and it doesn’t have any adverse impact on your score. When the bank or lender inquiries for a credit report, it is referred to as hard inquiry and it can reduce your score. You can be rest assured that your credit score won’t get impacted due to soft inquiries.
A credit score inquiry through Loan Qubes would require furnishing PAN card details along with phone number. This information is required for verification purpose only to identify you as the owner of the report. The credit score is completely free in addition to the process being simple and fast.
Credit reports are a summary of an individual’s credit history. The report contains details of the credit and loan history along with other basic details. Most lenders (banks) use the credit reports in making effective lending decisions. In a credit report, you will find information related to all types of loans and credit account, the report will also contain details such as the name, date of birth, PAN card number, address, etc. You can also find details related to the last credit report check performed by a lender. In India, there are four major credit information companies (CIC)) that provides credit reports of individuals. Some of the CIC offer a free credit score check while the other don’t, however, lender pay a fee while obtaining a credit report of an individual. When an individual applies for a loan or a credit card, the bank will review their credit report before approving the loan/credit.
The CICs collect the individual’s information from financial institutions such as banks as well as government agencies such as the Income Tax Department. These reports help the lenders in minimizing repayment defaults by avoiding individuals with a bad credit history. Though the banks are not solely relying on these credit reports to give out loans/credit, these reports play a crucial role in the calculation of eligibility.
What are Credit Reports Used for?
The CICs will evaluate an individual’s credit history to calculate a score that represents the individual’s credit worthiness. Each CIC has their own method of assigning the score, however, a high score will indicate a healthy credit score while a low score can decrease the chances of loan application approvals. Most of the CICs will provide you with a free credit score while a fee is charged towards the credit reports.
Why Credit Reports are Used?
The credit reports are used by lenders such as banks to determine the repayment capability of a loan/credit seeker. The credit report provides a useful insight into understating an applicant’s past credit repayment behavior. A credit report will also contain information related to late or missed payments that can adversely affect your credit score. When an applicant applies for a loan/credit, the lending institution will look into the credit report to determine whether you will be able to repay the loan amount. There can be various reasons for obtaining a credit report, such as:
Reviewing missed/late payments
Checking the credit score
To analyze all credit and loan accounts under one platform
Reporting errors on the report
Making effective landing decisions, etc.
You can refer to any CIC’s website to check whether you can purchase a quick credit report of yourself. These reports will help you in keeping a close tab on your credit score that can be useful while applying for any type of loan/credit. Reviewing the credit report periodically will also enable you to report any incorrect entries/information. If you are planning to apply for a loan/credit card, it is essential to make sure that you have a healthy credit score and report so the chances of loan application approval are higher
Most CICs offer credit reports through online and offline mediums. The individual will require producing of required details and make a payment to get his/her credit report.
The following documents and details are required for obtaining a credit report online:
The following documents and details are required for obtaining a credit report offline:
The online process will be quicker compared to the offline method, however, you can track the status of your credit report for free. The CIC will typically email the password-protected credit report to the individual when the credit report is requested through the online facility. In the case of offline application, the credit report will be sent through postal/courier services.