Lenders like banks and non-banking finance companies rely on credit reports before approving your loan or credit card application. A credit report is computed by credit information companies which are also known as credit bureaus. These credit bureaus collects, collates and aggregates data from its members (individual consumers and lending institutions) to provide information related to the credit history and creditworthiness of an individual. A credit bureau or credit information company is a financial institution that determines the creditworthiness of a debtor. These companies maintain a record of the financial activities conducted by the customer and provide scores. Moreover, the scores, also known as credit scores, help in deciding the financial standing of the customer. This also helps in approving/rejecting a loan/credit card application. Currently there are 4 credit bureaus in India, namely-CIBIL, Experian, Equifax and Highmark. All these bureaus are licensed by the Reserve Bank of India (RBI) and have their own parameters to decide the credit score of an individual.
CIBIL vs Experian vs Equifax vs Highmark: Comparison Table
|Established||2000||2006, license granted in 2010||License granted in 2010||Received licence in 2010|
|Credit Score Range||300-900||330-830||300-900||300-900|
|Cost of the Report||Rs.550 for Credit Report + Score.||Rs.399 for Credit Report + Credit Score)||Rs.400 (excluding GST) for Credit Report + Score||Rs.399 (including GST) Credit Report + Credit Score|
|Time taken to receive credit report||The online credit report is delivered instantly after making the payment.||The online credit report is delivered instantly after making the payment.||The online credit report is delivered instantly after making the payment.||The online credit report is delivered instantly after making the payment.|
|Products and Services||For Consumers:|
CIBIL TransUnion Score
Credit Information report
Market Insights, etc.
Portfolio Review reports
CIBIL Company credit information report
CIBIL Bureau Analyser, etc.
Customs solution, etc.
Experian Credit Information Report
Collection and money recovery
Data and Analytics
Customer targeting and engagement
Credit Information Report
Equifax portfolio review
Equifax risk score
Credit risk and fraud management
Industry diagnostics, etc.
CRIF High Mark Credit Information report
Microfinance credit reports
Identification and Anti-Fraud services
Predictive Analytics & Scorecards
Business Rules and Decision Management
External Data Connector
As per the RBI guidelines, every bank/NBFC must be a member of at least one of the credit bureaus in India. In fact, the Credit Information Companies collect and maintain loan-related information of individuals owning a PAN card from the member credit institutions. On the basis of this, you get an updated report on a monthly basis or at short intervals.
So, How Do Credit Bureaus Work in India?
Credit bureaus in India collect, maintain, and provide credit information from its member institution (banks/NBFCs). The information would include detailed repayment history (including missed or late payments), loan and credit card applications and corresponding approvals and rejections. It also includes total credit limit, defaults, the age of accounts, the status of credit accounts( whether Written Off, Closed, Settled or Current) among other information.
Based on this data, the Credit Information Companies generate a credit score and a credit report that is beneficial for both, the lenders and borrowers. In fact, the credit score gives a clear idea of how responsible the borrower is. In fact, the borrower too gets the benefit as they become aware of their credit situation. And what they need to do to become loan-worthy.
Here is a brief summary of all the credit bureaus of India.
TransUnion CIBIL or simply known as CIBIL was formerly known as Credit Information Bureau (India) Limited. Founded in the year 2000, CIBIL is the first Credit Information Company of India that has a strong and wide member base of over 950 entities including non-banking financial organizations, both private and public sector banks, house-finance companies, and other financial institutions. It has credit information of over 700 million trades across three divisions namely, Consumer Bureau, Commercial Bureau and Micro Finance Institution Bureau. Using credit information collected across these three bureaus, CIBIL generates a CIBIL credit report. The credit score issued under this credit bureau’s name is known as CIBIL score. TransUnion CIBIL credit score ranges between 30 to 900.
Experian is one of the major credit reporting agencies. A publicly listed, international corporation, Experian collects financial information from people and businesses worldwide to assess their credit risk. Experian uses that information to produce a credit history for each individual, and financial institutions draw from these reports when determining whether to extend credit such as a mortgage or a credit card to a customer. Established in the year 2006, the Credit Information Company was quick to make its space among the ‘World’s most innovative companies’ in one of the 2014 editions of the Forbes magazine. The Experian offers both comprehensive and detailed credit reports. Experian credit score ranges from 330 to 830.
Equifax was founded in Atlanta, USA, in 1899. In 2010, the credit bureau was registered as the Credit Information Company in India by the Reserve Bank of India. Headquartered in the USA, the company is one of the largest credit agencies in America. Like other Credit Information Companies, Equifax too keeps credit information of individuals as well as big, medium, and small organizations. Equifax via its detailed credit report helps you with relevant consumer information while giving you meaningful insights.
Highmark or High Mark Credit Information Services is another popular Indian credit bureau that maintains the record of every individual’s and organization’s credit information. Based in Mumbai, the Credit Information Company was founded in the year 2005. Besides collecting and maintaining the credit information, Highmark also offers credit reports and scores to its members and individuals. It also helps the lenders and other concerned financial entities to gauge the risk profile individuals and organizations before approving their credit or loan applications.
Parameters That Credit Bureaus Use to Calculate Your Credit Score
There are predominantly four credit bureaus – TransUnion CIBIL, Experian, Equifax and CRIF High Mark – operating in India. These bureaus use their algorithms based on the following credit aspects to calculate your credit score in India.
|Amount owed by borrowers||30%|
|Number of years servicing the debt||15%|
|Number and amount of recent loans availed or applied for||10%|
Let’s read more about these parameters.
Repayment History: It contains a weightage of more than one-third of your credit score and includes everything from the payment dates, instances of payment delays or defaults, and debt settlement if exercised. The timely payment track of loan EMIs or credit card dues for long could so easily take your score to the highs. Payment delays for not more than 30 days will not have any impact on your credit score. Because, by that time, the lender won’t have reported it to the credit bureau it has tied up with. If the delay stretches past 30 days, the credit score will come down.
Ideally, one should spend in a way that he/she pays his/her loan EMIs of credit card dues on time. However, due to the unpredictable nature of life, there could be an odd delay, but you better not get overly concerned. Instead, pull some out of your savings to pay off your dues within 30 days of the scheduled payment date. But don’t make it a habit as that could be viewed as a deliberate attempt from you by the algorithms that bureaus use.to calculate credit scores in India.
Debt settlement is an option that one uses to reduce the debt in a legal agreement with the lender. If you have done it in the past, you might have got away by paying a reduced debt amount which otherwise would have been massive. But doing so might reflect badly on your credit history, if not your credit score. This might shut the door for any unsecured credits such as personal loans and credit cards. However, the option of secured loans or secured credit cards is always there with you. While secured loans can be granted against securities or collaterals such as fixed deposits, public provident fund, national savings certificate, etc, secured credit cards are given against fixed deposits only. Lenders don’t feel much of a risk as they could recover the money by seizing your security/collateral in case you default.
Amount Owed by Borrowers: This is a very intriguing and delicate concept to understand. As a borrower, you could owe to lenders in the form of several credits. The bureaus will add all the loan amounts to ascertain your credit score. When it comes to credit cards, the concept of ‘Amount Owed’ will vary. With a credit card, you are not deemed to be on credit if you pay all your dues on time. Only when you delay or pay the due partially do you go into the debt cycle with interest and late payment charges levied on your outstanding balance. If the amount owed is too high and you’re committing long payment delays or defaults, it can impact your credit score negatively.
Length of Credit: One may not want to service the debt for long, but there are long-term loans such as home loans that keep adding to your credit history. But that will also end sometime. Loan records remain in your credit history for at least 7 years from their last repayment date. With credit cards, though, the credit history can be as long as your life. And there are people with multiple credit cards (both old and new ones). Old credit card accounts, if maintained well with a solid payment record, can add so much to your credit score. There may come a time when you wish to close some of your credit card accounts. If you do come to that point, ensure you close the newest accounts so that your credit score doesn’t take a bite. However, if you close the old accounts, it might lower your credit score.
Credit Mix: One should have an ideal mix of secured and unsecured credits to build a strong credit history. Too much of unsecured credit lines can become a bone of contention for you on committing late payments. As they are not backed by securities or collaterals, a poor repayment track of them can dent your credit history.
Recent Loans Availed or Applied for: This can also have a bearing on your credit score. The bureau will check the repayment track of the loans that got disbursed to you recently. There could be some loans you might have applied for without any success, which means the applications that have got rejected. The rejection of recent applications does impact your credit score negatively. It’s because of the hard credit enquiries that lenders make. And when you make multiple applications at different lenders, chances of rejections only mount. This is because all these lenders will pull your credit reports from the bureaus at the same time. These hard credit enquiries may prompt bureaus to lower your score by creating an impression that you are credit-hungry. Ensure you don’t apply everywhere at the same time if you care for your credit score.
What is a CIBIL Report?
CIBIL report is a single unified document that contains credit history across different lenders over a significant period of time. It is a comprehensive report that provides details of an individual’s or corporate entity’s borrowing history and repayment record. The credit report includes the following information:
- Personal details of an applicant (name, age, gender and address)
- Employment details and earnings
- Number of hard enquiries made by potential lenders on receipt of the loan/credit card application
- Records of previous and current loans along with the payment record
- Any defaults on the loan
- The details of settled loans, if any
- Total credit limit and the amount spent monthly (Credit Utilisation Ratio)
- Any credit card payment defaults
- Credit Score
This report provides lenders detailed information of the applicant’s creditworthiness on the basis of previous and current credit behaviour. Based on the report, lenders take the lending decision.
How is CIBIL Report Generated?
The Credit Information Bureaus of India Limited, collect and maintains the records of individual’s and non-individual’s (commercial entities) credit-related transactions such as loans and credit cards. These records are provided by banks and other lenders on a monthly basis to these Credit Bureaus. Using this information a Credit Information Report (CIR) and Credit Score is developed. This enables the lenders to evaluate and approve loan /credit card applications based on the past record.
Note: Please note that every credit bureau provides a free credit report once a year. Moreover, the credit scores of all the credit bureaus would differ as each bureau has its own credit models. Even the lenders are aware of this difference, and take the decision keeping in mind of this difference.