Credit Scores are generated by significant Credit Bureaus commonly known as Credit Information Companies (CICs). The credit bureaus are financial institutions licensed by the Reserve Bank of India to collect information about a person’s credit behaviour. This information is further used to generate credit reports and credit scores. There are four major Credit Bureaus in India: Experian, Equifax, CRIF High Mark, and TransUnion which generate two main types of credit score models: FICO Score and VantageScore.
4 Major Credit Bureaus in India
- Equifax: It was registered as a Credit Information Company in 2010 and had its headquarters in Mumbai. It collects credit information about a person or a commercial entity and generates reports in a readable format. The credit score ranges from 1 to 999. It also provides risk and portfolio scores, credit fraud reports, etc.
- Experian: It was licensed in 2010 and was established in 2006. It analyzes the individual’s credit behavior and generates a credit report. The report is generated within 20 days, and the score ranges from 300 to 900.
- TransUnion CIBIL: Credit Information Bureau (India) Limited (CIBIL) was established in 2000 and received its license in 2010. The credit score ranges from 300 to 850. It analyzes and generates reports for individuals and entities and provides Performance scores for companies.
- CRIF High Mark: It is the only credit bureau approved to operate in India by India’s Reserve Bank. It was established in 2007 and obtained its license in 2010. The credit rating ranges from 300 to 850.
The above-mentioned Credit Bureaus generate two types of Credit Score models: the FICO Score model and the VantageScore model.
Before going further, let us first look at a credit score and the types of credit scores.
What is a Credit Score?
A credit score typically represents your credit behaviour. Generally ranging from 300 to 900, it indicates creditworthiness and credit history. Lenders often check your score to determine if you can repay the loan on time, and they expect you to have a minimum score of above 750 to qualify for a loan. Therefore, you need to maintain a high score and frequently check it using Buddy Score to track your credit behavior.
Types of Credit Score
The Credit Bureaus generate two main types of credit scores models: FICO Score and VantageScore. These credit score models indicate a person’s financial stability and repayment ability.
Let us look at both FICO and VantageScore models in detail.
Also Read: Know The Difference Between Hard and Soft Credit Inquiry
FICO Score Model
Fair Isaac Corporation first developed the FICO Score model in 1989. Almost 90% of the lenders use the FICO score as a deciding factor before offering credit, and the FICO score is a 3-digit number ranging from 300 to 850. According to this scoring model, having a good credit rating above 750 is considered excellent and helps efficiently get a personal loan at low-interest rates.
Credit Score Table according to FICO Score model
|Score Range||Credit Ratings|
|800 to 850||Exceptional|
|740 to 799||Very Good|
|670 to 739||Good|
|580 to 669||Fair|
|300 to 579||Poor|
How does the FICO Score model calculate the credit score?
|Percentage (%)||Credit Factors|
|35 percent||Payment history|
|30 percent||Amounts owed|
|15 percent||Length of credit history|
|10 percent||Credit mix|
|10 percent||New credit|
Developed in collaboration with three major Credit Bureaus (i.e. Equifax, Experian and TransUnion), the VantageScore model was created as an alternative to the FICO Score model. The updated or the latest version of this model (i.e. 3.0 and 4.0) has the same range for scoring as the FICO score (300 to 850). Though VantageScore and FICO score gives weightage to payment history, VantageScore emphasizes more on other factors such as credit utilization ratio, credit balance, etc.
Also Read: FICO score Vs. Credit score- What’s the Difference?
Credit Score Table According to VantageScore Model
|Score Range||Credit Ratings|
|781 to 850||Excellent|
|661 to 780||Good|
|601 to 660||Fair|
|500 to 600||Poor|
|300 to 499||Very Poor|
How does the VantageScore model calculate your credit score?
|Extremely influential||Total credit usage, balance and available credit|
|Highly influential||Credit mix and experience|
|Moderately influential||Payment history|
|Less influential||Age of credit history|
|Less influential||New accounts|
Factors that affect your Credit Score
Payment History: It is one the most crucial parts of your credit score and accounts for 35% of your FICO score. As a result, it has a significant impact on your credit score. Moreover, the lenders check your payment history to assess your credit behaviour and your ability to repay the loan without defaulting.
Credit Utilization Ratio: The Credit Utilization Ratio shows how much credit you have utilized to your credit limit. If you use your credit beyond the limit, it will negatively affect your score. Hence, maintain your credit utilization ratio below 30% of your income.
Credit Inquiries: Each time you apply for a loan, the lender conducts a credit check to determine your credit score, creating a hard inquiry. The number of credit inquiries is reflected on your credit report and accounts for 10% of the FICO score model. Hence, multiple hard inquiries reduce your credit score affecting your credibility.
Length of Credit History: It accounts for 15% of your FICO score. If you have a long tenure period for your loan and consistent repayment history, your credit score will improve.
Credit mix: It accounts for 10% of your FICO score. Having a diverse credit mix, such as car loans, home loans, credit cards, etc., shows how well you can manage various credit without defaulting. Hence, it also improves your credit score significantly.
A credit score is a deciding factor for applying for a personal loan, and having a high credit rating will help you get personal loans at lower interest rates. Making timely payments and repaying all your past debts can help you improve your credit score. Hence, you can also take advantage of a personal loan using Buddy Loan to improve your score and fulfil your sudden financial needs at affordable rates.
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