Credit Score
What is a Credit Score?
A credit score is a three-digit number representing the creditworthiness of an individual. It usually ranges between 300 and 900, depending on the credit scoring agency. A person’s credit score is an indicator of his/her creditworthiness.

How is the Credit Score Calculated?
Financial institutions such as banks, credit card providers, and lending institutions send their customer data to the credit bureaus on a continuous basis. The bureaus use their proprietary algorithms for calculating the credit rating of individual customers.
The algorithms also take into account factors such as the type of loan taken, how many loans or credit cards one has taken or used, whether or not the loan/s have been repaid on time, etc. are considered for calculating the Credit score.
Uses of Credit Score
- Credit Score is a crucial data of an individual that is used for both financial and non-financial purposes. Below are some of the situations where the Credit score is used.
- Banks, NBFCs, mortgage companies, credit card lenders, and P2P lending institutions check credit scores to evaluate the potential risk involved by lending money and to mitigate the chances of losses due to bad debt.
- Insurance companies check scores when deciding the auto-insurance premium rates.
- Mortgage companies and government agencies use credit scores to assess a borrower’s loan eligibility and create loan/credit terms.
- Credit scores are also used in case of employment decisions as a good credit score indicates a healthy financial life, and the chances of employee misappropriation of a company’s funds are less.
- Many landlords also obtain the credit score of an individual before leasing out their property to mitigate the risk of non-payment of rent.
- It is also used by telecom companies before extending post-paid offers and private networks.
- Any individual or organization which intends to enter into a contract that will require the other party to pay them back in a predetermined time uses the credit scores.
Want to improve your CIBIL Score? Read this.
Credit Scoring Agencies in India
Credit bureaus or Credit Information Companies (CICs) are financial institutions thatspecialize in collecting and maintaining data of credit behavior of commercial entities and individuals in India. This data is used to generate the credit report and the credit score of individual borrowers.
The four Credit Information Companies in India are as follows:
CIBIL
TransUnion CIBIL Limited is a credit information company operating from India. It maintains credit files of around 600 million persons and 32 million businesses. TransUnion CIBIL Limited is a part of TransUnion, an American multinational group based in Chicago. Trans Union CIBIL gathers consumer borrowing and payment information to assess pricing credit (setting the interest rate) and loan risk.
Equifax
Equifax was established in 2010 and headquartered in Mumbai. It is a joint venture with Equifax Inc.USA and seven financial institutions in India. It collects credit information of individuals and commercial entities and records them in a presentable, useful, and readable format using Credit Information Reports and Credit Scores.
Experian
Experian is the credit bureau which first received a license under the new Credit Information Companies (Regulation) Act (CICRA) 2005, in 2010. Experian India provides Experian credit report and score for use by both individuals and companies. It offers information, analytical tools to individuals and enterprises to make informed credit decisions.
CRIF Highmark
It is headquartered in Mumbai, CRIF Highmark offers comprehensive credit information for all types of borrowers in India including retail consumers, commercial and microfinance borrowers, and MSME (Micro Small and Medium Enterprises).