What is a credit rating?

A credit rating - also known as a credit score - is a 3 digit number between 300-900 that gives potential lenders a snapshot of the customer's credit health. Your score reflects your ability to fulfill your financial obligations within the formal banking system. It is calculated on the basis of several factors including, most importantly, your repayment history.

Who issues the rating, and how is it calculated?

A credit rating or score is issued by credit rating agencies. There are three such agencies operating in India – CIBIL™, Equifax, Experian and CRIF High Mark. Your credit score is arrived at based on your credit track record. It does not take into account your assets or investments or any other non credit-related financial transactions. The credit agencies have details on every credit transaction you have entered into with the formal banking system, including your monthly EMI history, every loan/credit card application you have made, and information on whether it has been approved or rejected. The agencies also receive information from lenders on any late or missed payments, and incomplete/partial payments. Your credit score is calculated based on all these factors, among many others.

Why is my credit rating important?

There are several situations where your credit score plays a crucial role:

1.  When applying for a loan - Potential lenders ask credit rating agencies for your credit score and/or your credit report to evaluate if you are a high-risk customer. If you have a low score, they might be unwilling to lend to you as they are unsure about your ability to make full and timely repayments. If you have a good score, lenders will view you as a safe, low-risk customer and automatically approve of your loan application. In addition, you might be offered better terms (lower interest rates) or a longer repayment period.
2.  When applying for a credit card – If you have a good score, you will be eligible for better interest terms, higher credit limits, certain kinds of awards or waiving of some fees.
3.  When applying for a job – Potential employers can ask for your credit score to judge if you demonstrate a consistent pattern of financial responsibility. This is especially important in sensitive jobs in the financial sector or in compliance roles.
4.  When planning to rent – In advanced credit economies, like the U.S., landlords can request the credit agencies for your credit score to judge if you can be trusted to meet your rental payments. This might be the case in future in India as well.

What is a good credit score?

In general, a credit score above 750 enables you to be loan-eligible. Many loans applications are automatically approved when the customer has a score in this range.
Any score below 750 runs the risk of loan rejection. Even if you are approved with a low score, you might not be offered competitive interest rates. It is better to ensure that you have a good score before you apply for a loan.

How do I obtain my credit score?

You can apply online to request your credit score. You will need to provide the requisite ID and address proof documentation and make the payment. After verification, you will receive your credit report which contains your credit score.

Alternatively, CreditMantri can help you get a free credit report and score. You will be guided on how to improve your score, if required, so that your loan application is not rejected and you are able to avail of more attractive loan offers.