Credit Report contains your credit score and history of repaying loans or credit.
What is CIBIL TransUnion Credit Score?
A credit score is a number generated by a mathematical formula – based on information in the credit report. A credit score is a three-digit number that is used to predict how likely you are is to repay a loan/credit on time. The resulting number is a highly accurate prediction of how likely you are to repay your loan/credit.
CIBIL TransUnion Credit Score Ranges
As per CIBIL, most credit scores range from 300 to 900, with the majority of people in the 600 to 800 range.
What is the Best Credit Score?
As per CIBIL, to get the most favourable interest rates, you’ll need a score of 720 or higher. In terms of interest rates, on average, a person with a credit score of 520 will get interest rates on loans that are three to four percentage points higher than rates given to a person with a score of 720.
What is a Credit Score Made up of?
Nobody (other than CIBIL TransUnion) knows the mathematical formula behind the calculation of credit score. However (as per investopedia), what is known is that the calculation is broken into five major categories with varying levels of importance. These categories, with weight in brackets, are payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%) and type of credit used (10%). All of these categories are taken into account in your overall score – no one area or incident determines your score.
Why do Bank started using Credit Score?
To check how likely their future customer is to repay a loan on time. Check out the below example –
Two friends, Raj and Samir, working in a MNC and drawing a handsome salary. Raj has taken a car loan from XYZ Bank and has been paying his EMIs in a timely manner. Samir also took personal loan from XYZ Bank, but due to some personal issues, he defaulted in EMIs payment. Now both of them looking to buy a flat and in the market for home loan. Raj went to XYZ Bank for home loan, after checking his past paying record bank immediately gave him the loan at low rate. Samir went to ABC Bank (avoided XYZ Bank), submitted all the relevant documents and not mentioned any details about the past default of personal loan in loan application to ABC Bank. Samir also got home loan at the normal rate without any trouble, because there is no way for ABC Bank to check the credit history of Samir.
However, if credit score was available then ABC bank obtains a credit score from CIBIL where Samir shows up as a defaulter with another bank. This could either result in a rejection of his home loan request or the ABC Bank might charge him a high rate of interest.