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Are You Credit Aware?

Monday, July 18, 2016
By Abhishek Agarwal

Abhishek Agarwal is Co-founder and Director, Creditvidya

Though credit bureaus have been functioning in India since almost a decade and half, but a survey shows that almost more than 80% of the Indian population does not know about the existence of credit bureaus and a miniscule understand their credit reports. The awareness about the utility of credit report utility was also low. Being credit aware is a necessity to have a good credit score which in turn is of paramount importance if one wants to have access to borrowing through So if you want to know if you are credit aware then just go through the following questions we have for you.

Do You Know what is Credit Score?
Some of you may have heard about the credit score also known as CIBIL score (generally) but do you know what it is. The credit score is a three digit number ranging on a scale of 300 to 900. This number is calculated by considering various factors related to loans, credit card and the repayment history of an individual.

Is the Credit Score same as Credit Report?
While the credit score is three digit number, the credit report (CIR: Credit Information Report) is a comprehensive document that has information other than credit score and loan. The credit report carries personal/professional/contact information, full details about all loans, their type, status of a loan and its asset classification, enquiries status, how old the debt is and so on.

What is Credit Score Important?
If your credit report is more than or equal to the threshold level which is acceptable to them then only you go to next level else your application is rejected outright. A CIR helps the lender assess the risk potential a prospective borrower poses if he/she is sanctioned a loan.

Is a Credit Score Useful only for Sanctioning a Loan?
The utility of a credit score goes beyond the acceptance of the loan application. A good score could help you save money by getting you good deals on the loan interest rates, waiver of certain fees by the lender and of course faster loan processing.

What Impacts your Credit Rating?
There are basically five factors that impact the credit score of an individual. The first is the repayment history; this is by the most important factor and has a 35% share in the credit score calculation. The next is credit utilization ratio which has a 30% weightage in the score calculation. The other three factors are loan tenure which contributes 15% to the score and loan inquiries and credit mix each contributing 10% to the rating.

Is Your Income Level got to do anything with the Credit Score?
The credit score has no relation whatsoever with the income level of an individual. A credit rating is only based only on the treatment of debt.

Is CIBIL the only rating agency?
Though CIBIL is the most well known and the oldest rating agency, it is not the only one. There are three other agencies that rate individuals; these are Experian, Equifax and CRIF Highmark.

Does no Credit Mean a High Credit Score?
No it does not! The idea of a credit rating is to assess how a person is likely to treat his/her debt in future based on the historical data. So no credit trail means no credit score, generally a NA or NH is given to such an individual. This means that either the person has no credit history or it is not old enough to be rated.

Hopefully the above discussion will let you assess if you are aware and if so how much about credit rating, its calculation and its importance. If not so then hopefully we have been a little help.

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