Imagine you're in your college. You get a good amount of pocket money, which is more than your monthly expenses; hence you always end up saving some money in the end. Now imagine two of your classmates come to you on different days and ask you for some money. Now, since you only have limited savings, you can afford to help out only one of them. How do you decide whom you will lend the money to?
This is where their credit score will come to play. Now, for a college student, the decisive factors may include a lot more emotions and personal biases instead of just their past lending behavior and market reputation. Still, it cannot be the case for a bank or company that runs in the market. They lend money to people based on a numeric score that can put an individual on a considerable scale.
This numerical value is based on the past credit behaviors of a person and depicts their creditworthiness. It is known as the credit score.
Credit Score
A credit score is a three-digit numerical value that suggests an individual's creditworthiness. It plays a key role for lenders to decide their potential borrowers. Lenders tend to use an individual's credit score to determine if they will repay the loan on time or not. The higher the score, the better is an individual's chance to get money from a lender. A credit score is based on a person's credit history, which includes factors such as the number of open accounts, total levels of debt, repayment history, and other factors.
In India, there are several credit bureaus that can provide credit scores to people and companies. These bureaus are known as credit-rating agencies that calculate people's credit scores and are regulated by the Securities and Exchanges Board of India (SEBI). Some of India's major rating agencies include Experian, CRIF High Mark, Equifax, Credit Rating Information Services of India Limited (CRISIL), ICRA Limited, Credit Analysis and Research Limited (CARE) the TransUnion CIBIL, etc.
TransUnion CIBIL Limited, formerly known as Credit Information Bureau (India) Limited (CIBIL), is a credit bureau or a credit rating agency that maintains the records of all the credit-related activities of companies as well as individuals, including credit cards and loans.
What is a CIBIL Score?
The CIBIL score is the credit score that is provided by TransUnion CIBIL. It is a numeric, three-digit credit summary that reflects a person or a company's credit profile and history, and it ranges from 300 to 900.
Although all credit agencies are licensed by the RBI to calculate the credit score, the CIBIL score is the most commonly used and preferred credit score by banks and other financial institutions. The difference between the CIBIL score and a credit score is that any credit agencies can provide a credit score, but only CIBIL can give a CIBIL score.
According to the CIBIL, any score that is greater than 750 is a good CIBIL score and helps the lenders to assess and approve loan applications. The CIBIL score of an individual is derived from their CIBIL report, which includes data such as borrowing and repayment habits, which is submitted by banks and other lenders with CIBIL on a regular basis.
The past behavior of a borrower is considered as an indicator of his future behavior as a borrower. Examining and studying the CIBIL score and report is usually the first thing any lender would check before approving any loan.
