Credit score can be defined as the creditworthiness of a person coded into a 3-digit number. Credit score is one of the determining factors for the approval of a loan or credit card application. This score is affected by a range of factors such as payment and borrowing patterns, the number of credit card or loan applications, credit utilization and so on. A credit score is primarily based on a credit report information typically sourced from credit bureaus.
A Credit report which includes a person’s credit history with the detailed information of his/her credit accounts and loans, bankruptcies and late payments (if any) apart from their personal information is called a credit report. It is issued by licensed Credit Information Companies.
Complex mathematical algorithms are applied to the client’s records, submitted by member banks and credit institutions, to arrive at a credit score and also to publish the credit report.
5 Key Factors of a Credit Score:
10% Credit inquires
10% Account mix
15% Credit age
30% Credit utilization
35% Payment history
A complete analogy of concerned individual’s financial report: To determine an individual’s credit worthiness, view other loan status and review missed/late payments
One Place for all: To analyse all credit, loan and defaulted accounts under one platform
Making effective lending decisions: By checking the credit worthiness of the borrower and inversely inducing a healthy nature within the corporate borrowers.
One of the most important factors considered by banks when deciding about your loan or Credit Card application.
Credit Score determines the interest rate banks chalk up for you.
Banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.
Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments employ this technique.
Credit scoring has much overlap with data mining, which uses many similar techniques.
For Credit score, Individual provides Permanent Account Number(PAN) and other demographic details(name, gender, address & date of birth).(name, gender, address & date of birth).
According to RBI, every financial institution is expected to send the financial data of the individual on a monthly basis to credit bureaus (CIBIL, Experian, Equifax and High Mark).
These credit bureaus review the financial data that is useful for the credit score.
All the bureaus have a standard procedure to formulate the credit score, no matter from which bureau you’re receiving the score, it will have the importance as the other.
The credit score report will generate the following information:
Credit Score: This section indicates about your credit worthiness.
Personal Information: This section has your personal details as reported by any of your lenders.
Enquiry Section: This section contains details about all the enquiries made about you from different lenders.