CIBIL, the first credit bureau in India, has launched 'Score', which will help individuals to get loan approvals quicker and negotiate better interest rates

Lenders are readily giving loans to customers who have a credit score of 800 and above, therefore, it is in the interest of a loan-seeker to maintain a healthy credit score.

A credit score provided by credit bureaus like Credit Information Bureau (India) Ltd (CIBIL) is an assessment of an individual's probability of default over a period of the next 12 months. The 'Score' will help credit institutions estimate the likelihood of repayment of loan, based on an individual's past pattern of credit usage and loan repayment behaviour. The closer the score is to 900, the more confidence the credit institution will have in the individual's ability to repay the loan and hence, the better the chances of the individual's application getting approved.

According to information available, in 2010, the percentage of new loans sanctioned went up to 57% from 37% in 2008, for customers who have a credit score of 800 and above. This means more and more lenders are choosing to give loans to customers with better credit scores.



Till today, individuals were not able to access their credit score, but CIBIL's new product 'CIBIL TransUnion Score' will change this.

Arun Thukral, managing director, CIBIL, said at a news conference today, "We are very happy to provide this service directly to consumers as knowing their CIBIL TransUnion Score will help them assess their credit history better and enable them to 'see themselves as lenders do'. We believe that this initiative will also be helpful in making the lending process more transparent, inculcating financial discipline and enhancing consumer awareness on credit information."

"The higher the score, the more favourably it is viewed by credit institutions. However, every credit institution has its own benchmark of what constitutes a good credit score. CIBIL does not recommend any cut-off score for loan application eligibility," Mr Thukral said.

The CIBIL TransUnion Score is a three-digit numeric summary (ranging from 300 on the lower side to 900 at the higher side) of a consumer's credit history, compiled from information received from lenders who are members of CIBIL. The model followed by CIBIL predicts the likelihood of an individual missing more than three payments on a credit line over the next 12 months.

The CIBIL TransUnion Score product is available to consumers for Rs450.

The officials from CIBIL could not provide the exact components and their weightage for the calculation of the credit score for individuals. However, Satish Pillai, senior vice-president, marketing and data quality, CIBIL, said, the highest weightage would be given to delinquencies.



The world over, the exact formula for calculating credit scores is kept a secret by credit bureaus. Each major credit bureau in the US (Experian, Equifax, TransUnion) uses a proprietary tool developed by the Fair Issac Corp to calculate a FICO score. The components and their weightage in a credit score, as disclosed by FICO, and available on Wikipedia are:

1. Payment history - 35%. Late payments on bills, such as a mortgage, credit card or automobile loan, can cause a FICO score to drop. Paying bills on time will improve your FICO score.

2. Credit utilisation - 30%. The ratio of current revolving debt (such as credit card balances) to the total available revolving credit, or credit limit. You can improve your FICO scores by paying off debt and lowering the credit utilisation ratio.

3. Length of credit history - 15%. As your credit history ages, it can have a positive impact on the FICO score.
 
4. Types of credit used - 10%. You can benefit by having a history of managing different types of credit, like instalment, revolving, consumer finance and mortgage.

5. Recent search of credit - 10%. Credit inquiries, which occur when you are seeking new credit, can hurt your score.