What is a credit score? How is it calculated?

A credit score is a three digit number that ranges between 300-900. This score gives any lender an idea of your credit worthiness. In simple terms this number will let people know how likely you are to repay a loan should you receive one. Higher your credit score the more likely you are to receive a loan and vice versa for a lower credit score. 


Your credit score is critical when it comes to unsecured or collateral-free loans and can effect your eligibility for personal loans to a massive extent. 


In this blog we talk about an individual's credit score,  but did you know companies have credit scores as well. This indicates to lenders how credit worthy the companies are and will also impact the ability of the company to get investments.

The different credit bureaus in India. 

Four companies have been licensed in India by the RBI to manage credit scores. The most popular out of the companies is CIBIL, which was founded in 2001. The other credit score companies are Equifax, Experian and High Mark. Each one of these companies have a scoring system that is unique to them. 

What are the main differences between the four credit bureaus? 

  1. CIBIL 
  • Oldest bureau, founded in 2001.
  • Provided credit reports for businesses as well as individuals.
  • Scoring system ranges between 300 and 900. 

  1. Equifax
  • Commenced operation in 2010. 
  • Credit scores range between 300- 900.
  • The additional facilities provided are credit risk fraud management, portfolio management, and industry diagnostics.

  1. Experian 
  • Existed as an international company since 2006, but has commenced operation in India in 2010.
  • Credit scores range between 300- 900.
  • The list of additional services Experian offers are customer acquisition, collection, money recovery, customer management, data analytics, customer targeting and engagement. 

  1. High Mark
  • Commenced operations in 2007, however HIgh mark only received their license as a credit card company in 2010. 
  • The credit scores range between 300 and 900. 720 and above is considered good, while 640 and below is considered poor. 
  • The additional services offered are portfolio management, alerts, and geo-analytics consulting.

How does CIBIL calculate your score? 

Here are factors that determine your credit score. Along with their weightage. 

  • Your repayment history (35% of your score) 

Refers to how well you have been able to manage your debts. Since this is the highest weightage, ensure you pay all your dues in a timely manner. 

  • Your credit balance and utilization (30% of your score) 

The amount of credit available to you and how much of it you have already used. 

  • Duration of availing credit (15% of your score) 

Refers to the repayment duration and the timely repayment within this duration. 

  • Credit Inquiries (15% of your score) 

Even inquiring too many times about credit can negatively impact your score. Too many inquiries may make you seem too credit hungry in the eyes of lenders. 

  • Your credit mix ( 10% of your score) 

You should have a healthy credit mix. This implies taking different types of credit. These ty[pes of credit refers to secured and unsecured loans. 

What are the components of a credit report? 

  1. Credit summary: The credit summary contains details about the credit and accounts you have/had, with information regarding the balance. 
  2. Account history: This section contains very specific information regarding the type of credit you borrowed, the name of the lender, the amount of credit borrowed, the date the account was opened, date of most recent payment, current balance and monthly record. 
  3. Credit inquiries: Every time you apply for a loan or a credit card, lenders will access your credit report to analyze the information. Credit inquiries refers to the number of times your credit report has been accessed in two years. 
  4. Profile information: This section includes any information about you (current/previous). That could be vital to a lender prior to giving you a loan. This information includes big financial slip-ups such as bankruptcies and criminal arrests. 

Micah Parambi

March 6, 2024

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