While talking about loans, we often hear the term credit bureaus. Do you know what they do? They provide credit ratings. Let’s check them and take a closer look.
The RBI authorizes companies registered under the Credit Information Companies (Regulatory) Act of 2005 to provide a credit rating or credit score based on past performance reports.
Credit ratings are issued by four major credit institutions in India. These are Credit Information Bureau (India) Limited (CIBIL), Equifax, HighMark and Experian. In India, the CIBIL score is the most popular since CIBIL is the oldest bureau. However, many lenders use Experian and Equifax to make their loan decisions. All creditors are now required to provide data to all four bureaus.
Your credit score is considered a direct indicator of your credit standing. The number of loans and types of credit accounts, outstanding debt and credit history also play a role in determining your CIBIL or Equifax score. If you maintain a good track record backed by a solid Credit score (be it CIBIL score or Equifax score or Experian score or HighMark score) lenders will be very comfortable lending to you.
A bad credit score could reduce your chances of getting loan approval. Here are a few factors which harm your credit score.
Delay in Payment:
If there is any delay in your repayment track record, it will be badly reflected on your CIBIL score. A default will harm your score severely.
Don't carry too much debt:
When it comes to calculating what debtors owe, your repayment history and how much you owe to creditors are the two main things. If you overuse your credit, your profile is considered "risky."
Length of credit history:
The length of your credit accounts for 15% of your CIBIL score. If you are serving debt responsibly for a long period, it will have a positive effect on your CIBIL score.
Opening lots of new accounts:
Whenever you apply for new credit, banks and other NBFCs run bureaus checks, and this is reflected in your credit history.
Now that you know the main factors that affect your credit score, you must use all of these to maximize your credit score. You can get your credit report online to know your CIBIL score and how your credit score builds up. After all, a good credit score helps you get multiple lending options.
Credit bureaus are agencies that collect data from a variety of providers, including debtors, creditors, and collection agencies. and maintain individual credit information. The credit bureaus then sell it to creditors, lenders, and consumers in the form of a credit report.
The main purpose of a credit bureau is to help ensure that lenders have accurate credit information about potential borrowers. That said, the credit bureaus are not responsible for deciding whether the individual deserves credit or not they just collect and synthesize the credit information of the individual and provide it to the lenders. Their typical customers are banks, credit card issuers, mortgage lenders and other personal finance lenders. Consumers are also customers of credit bureaus because they may receive credit information from them.
Experian was the first credit bureau to be accredited under the New Credit Information Companies (Regulatory) Act of 2005 (CICRA). Experian India provides credit reports and credit scores. They also provide marketing services and analytics tools to help individuals and businesses make informed credit decisions.
Established in 2000, TransUnion CIBIL is India's first and most popular credit bureau. The credit bureau collects and maintains credit information of more than 1000 million individuals and commercial entities. Your credit information is collected from 3 bureaus Commercial Bureau, Consumer Bureau, and Micro Finance Institution Bureau. TransUnion generates Credit Information Reports (CIR) and CIBIL scores for CIBIL individuals. It also generates CIBIL rank and CIBIL commercial reports for commercial enterprises. All major banks, housing finance companies, financial institutions and NBFCs are CIBIL members.
CRIF Highmark is headquartered in Mumbai. It claims to be the first full-service credit bureau in India, providing comprehensive credit information to all lending departments in India, including MSMEs, commercial and micro-lenders and retail customers. In addition to providing credit reports and credit scores, Highmark also provides data management, insights, analytics, and related software solutions to banks, NBFCs, MFIs, insurance companies, housing finance companies, telecom service providers, etc.
Registered as a credit information company in India since 2010, Equifax is headquartered in Mumbai. It is a joint venture between Equifax Inc. USA and 7 top financial institutions in India. Credit bureaus compile the credit information of individuals and commercial entities and present it through CIR and credit scores. It has a separate section that caters to the financing and regulatory needs of microfinance institutions.
-The Reserve Bank of India (RBI) give license to all the credit bureaus.
-Each credit bureau has its unique algorithm for calculating a credit score.
-Credit scores of the two credit bureaus may vary, however, they will be accepted as valid.
- Banks and non-banking finance companies (NBFCs) regularly send credit information to all credit bureaus.
- Although the credit score calculation algorithm is different for different credit bureaus, they generally consider five factors when calculating a credit score. These include the type of credit, payment history, credit exposure, age of credit, and credit inquiries.
When you borrow money, you may have a plan to repay in some time. But you may find yourself in a situation where you cannot meet your obligations.
Loans have made our lives easier and simpler. From home loans to car loans to business loans, many types of loans are available in the market to cater to your different needs.
In India, lenders keenly watch the credit score when it comes to lending to an individual. So, one must know about their CIBIL score and the ways to improve it. The loan is given by a lender to a borrower in whom the lender has full confidence.