You need to be more careful about your repayments and
credit history now if you want to take loans in the future. The
country’s first credit rating agency, the Credit Information Bureau
(India) Ltd (Cibil), on Wednesday stated that banks are now considering a
higher credit score for loans, especially for auto loans. This means
that you will need a higher credit score to get a loan. Moreover, Cibil
said that the number of enquiries for credit score by financial
institutions have increased after the 2008 crisis.
What is a credit score?
Credit score is a number based on your credit report,
which is a summary of your past and current borrowing and your repayment
history, that a credit bureau agency prepares. If you have been regular
with your loan repayments, your credit score is likely to be higher.
Banks use this score to assess your repayment capacity and the chances
of you defaulting on the loan. Your chances of getting a loan and a
better rate increase with a higher credit score and vice-versa.
Currently, Cibil and Equifax Credit Information Services
Ltd provides credit score. Experian Credit Information Co. of India Pvt.
Ltd, another credit bureau agency, provides credit report.
The bank from where you are in the process of taking a
loan gets your credit score directly from the credit bureau agency. If
you want to know your score, you can get it but at a cost.
How do they reach the score?
The score is based on various parameters such as past
credit payment history, current credit activity, number of secured and
unsecured loans, credit cards and demographic variables such as address,
income and place. The score is offered differently by different
companies. For instance, Cibil’s credit score is a three-digit number
ranging between 300 and 900 for those who have a borrowing history of at
least six months. Those who have a borrowing history of less than six
month get a score between 1 and 5. In case of Equifax, the score varies
between 1 and 999.
How can you improve your credit score?
Paying your dues on time obviously will give you a good
credit score. Besides that, you can also improve your credit score by
keeping enquiries for new loans lower. This is because the credit agency
keeps a track of all such enquiries.
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