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  • Know About Credit Score and How is it Calculated?

    A credit score can be defined as a 3-digit number between 300 and 900 that describes the credit merit of a credit card holder or of an individual who has taken a loan. In order to grant a loan in India, the potential lenders use the credit scores calculated by CIBIL TransUnion, Experian, Equifax or CRIF High Mark. Several lenders consider CIBIL scores to be the benchmark for granting a loan to a borrower. Credit scores help to depict the credit and repayment history, utilization of credit, tenures of previous debts, and so on. Although the banks in India have their individual limit to grant loans, your chances of getting a loan approved is higher if your credit score is 900.

    Credit Score And How It Is Calculated

    A credit score is a representation of your creditworthiness in a numerical format. It is calculated by the four credit bureaus in the country- TransUnion CIBIL, Equifax, Experian Credit Information Company and High Mark Credit Information Service. Each credit bureau has its own proprietary algorithm they use to compute credit scores. They take into consideration several factors including credit history, repayment behaviour, among others, at the time of calculating the credit score

    A credit score falls in the range of 300-900. If your credit score is closer to 900, you will have better chances of getting a good deal at the time of applying for a loan or a credit history. Majority of lenders like banks and non-banking finance companies consider a credit score of 750 and above as ideal.

    Credit Score and How it is Calculated?

    A credit score is a 3 digit number that ranges between 300-900. Generally, lenders like banks and non-banking finance companies consider a credit score of 750 and above as ideal. The credit score is calculated by the credit bureaus in the country. Each credit bureau has their own algorithm that they use to compute your scores. A credit score is calculated after taking into consideration five main factors such as credit history, credit utilisation, credit age, credit type, and credit inquiries. Let’s take a look at all of these factors in detail.

    • Credit History: Credit history is one of the most important factors that affect your credit score. It accounts for 35% of your total credit score. If you have been consistent in your bills or EMIs payments, lenders will think you are at a lower risk of turning a defaulter and will grant you credit. You will also be eligible to get preferential pricing and quicker approval for your loan or credit card applications. Hence, you should make sure to pay all the bills on time and avoid any delays.
    • Credit Utilisation: The credit usage is the second biggest factor that comprises your credit score. It accounts for 30% of your total credit score. A credit utilisation ratio refers to the ratio of the amount is respect to the limit of your credit card. The credit utilisation ratio is calculated as the balance that is outstanding on your credit cards and loan. According to experts, consumers should ideally use only 30-40% of the credit limit to maintain a high credit score.
    • Age of the Credit: 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. A long credit history helps lenders to take a sound decision about whether to offer you credit or not. Therefore, you should not close your old credit cards even if you are not using them as they might have a long credit history that shows responsible repayment behaviour.
    • Type of Credit: 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: When you apply for a credit, you trigger an inquiry from lenders which is known as a hard inquiry. Each time a hard inquiry is made, it affects negatively on your credit score. Therefore, it is advised to check your credit score on your own before applying for a loan. When you check your own credit score, it is termed as soft inquiry, and it does not bring down your credit score. Credit inquiries account for 10% of your credit score.
    Credit Score and How it is Calculated?

    How Banks Determine whether to Give you Credit

    Each time you apply for a loan or any other form of credit like a credit card for instance, the creditor has to determine if you’re capable of paying back the loan and if it’s a risky business to lend you money in the first place. Therefore, they primarily use your Credit Score to evaluate your credit worthiness, how worthy you are of receiving credit.

    A credit score is a structure put in place to understand how risky it is to lend to a potential customer. All transactions made by you in the credit market is recorded and is equated to points. These points are then evaluated to a number between 300 and 900. This is your credit score and the higher it is, the better your chance of obtaining a loan. If you are below a certain threshold in terms of your credit score, a creditor may decide not to grant you a loan.

    There are many factors that affect your credit score and different creditors have different thresholds when granting a loan. Some of the factors that banks consider before approving a loan are:

    • Amount and duration of the loan – All your secured and unsecured loans are recorded in your Credit Report. A high amount of debt, especially unsecured debts, is perceived to be a risky investment for creditors. And, a longer duration of the loan is treated as less risky by creditors.

    • Past behaviour – Your previous debts and the discipline in repaying the debt is a major factor that banks take into consideration before approving your loan. Of course, the bank is more likely to approve your loan if you’ve been repaying your previous debts on a timely basis.

    • Credit utilization ratio – Credit utilization ratio is the ratio of the overall credit available to a borrower against the outstanding balance throughout all loan accounts. The closer you are to using up your maximum credit limit, the lesser the chance of you getting the loan approved. A higher credit utilization ratio illustrates to a creditor that you are craving for credit. This may lead to a rejection in a loan or credit card.

    • Other factors - Other factors such as defaults in previous payments, failed loan applications, rejected credit card applications, repayment behaviour, etc., are all factors that banks take into consideration before approving a loan or credit card.

    Overall, it is important to be disciplined at repaying your debts. This will generate a good credit history and will also be a huge catalyst in helping you get your future loans and credit cards approved.

    How Inquiries Affect Your Credit Score?

    News About Know about Credit Score and how is it calculated?

    • FDI inflows were at the highest level in October in India

      Rupee depreciation to a record low level has resulted into a rise in the Foreign direct investment (FDI) in India. In October 2018, the country’s FDI was at the highest level in six months as the benchmark stock index declined. As per the latest data from the Reserve Bank of India (RBI), Gross FDI inflows were $6.54 billion in October, the highest since $6.7 billion in April. Fall in the equity market and opportunistic buying doubled with the weakening rupee were some of the main reasons, India witnessed high gross FDI inflows in September and October, said Saugata Bhattacharya, chief economist at Axis Bank. In addition, there were a couple of large corporate acquisition deals in the previous months and possibly some early IBC (Insolvency & Bankruptcy Code) resolutions. The rupee became Asia’s worst-performing currency on 11 October 2018 as it hit a record low of 74.48. However, this meant that a single dollar would have fetched more of the local currency, making sense for multinational companies to bring capital into India where they have units. Madan Sabnavis, chief economist at CARE Ratings stated that FDIs come based on opportunity and availability of investible funds. India still is fast growing with hospitable FDI rules, and the country offers better prospects especially for the long term. In November, the World Bank said India had climbed 23 positions in its Ease of Doing Business Index to 77th p

      9 January 2019

    • Bank of Baroda relying on CIBIL score to control retail NPAs

      In a bid to control defaulters, Bank of Baroda (BoB) is being extra careful of it retail customers. Over 50% of the bank’s home loan borrowers have minimal risk with high credit scores. Moreover, it is also offering the lowest rates in the market at present thereby giving a tough competition to the bigger banks like State Bank of India and HDFC Ltd. Bank of Baroda was one of the first banks to base the interest rates for home loans on the Cibil scores. The rate of interest varied from 8.65% to 9.65% depending on the CIBIL score. Thanks to the tighter norm of checking the CIBIL score, BoB has improved its portfolio. The bank had 57% borrowers with a CIBIL score of 760 and above. Retail loans at BoB were growing at 33.55% over the previous year. There was an exponential increase in the auto personal loans as both of them registered an increase of 39% as on half year ended September 2018, as compared to the previous year. The bank expects to grow at a similar pace in the second of the fiscal. The total retail non-performing assets (NPA) of the bank are at Rs.1,827 crore, which is 2.40% of its total NPA pool. This is an improvement from March 2018 when the bank's retail NPAs were 2.83% of the total NPAs.

       

      In the first 6 months of FY19, BoB has 75% of new customers with a CIBIL score of 760 and above, said Virendra Sethi, general manager in charge of retail loans at BOB. In addition, Bank of Baroda is also

      Working on expanding its education loan portfolio and has reported a 24% rise in sanctions. The highest growth in this segment is seen in loans to students from premier colleges and loans to fund their studies in foreign countries. The total outstanding retail loans of the bank at the end of September 2018 was Rs.76,252 crore, of which home loans were at Rs.49,345 crore, auto at Rs.6,660 crore and education loans at Rs.2,285 crore

      27 December 2018

    Credit Report Reviews

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      I am using bank bazaar features from last few years. Service provided by bankbazaar is good when compared to others in the market . Customer service is good and their response is good. One step solution for all you banking needs . A periodic tracking of your credit score is maintained well and kept updated in email as and when new scores arrive .
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      0.5 4.0/5 "Great!"
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      0.5 4.0/5 "Great!"
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      Well, I appreciate the efforts taken by Bank Bazaar in providing the credit score feature, in fact it is an excellent idea too. Basically, I got to know about Bank Bazaar through their promotional mails. Therefore I advise all my friends and colleagues to explore all the features and to reap the benefits offered by Bank Bazaar.
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      "Good service"
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