In INDIA, the credit score is synonymous with the CIBIL score.

There are multiple websites and agencies which claim to provide FREE credit score to customers through their website.

As they say, there are no free lunches in this word.

The ultimate aim for these companies is to share your information with lending companies like banks or NBFCs as a prospective customer.

As per the RBI directive, you are entitled to one full free credit report per calendar year from the credit bureau companies. The credit score depends upon credit history received from various financial institutions.

Most of the companies claiming to provide a free credit score report have tied up with the credit bureau companies to provide the report.

In case customer don’t want to share details with the third party, they can directly visit credit bureau companies’ websites and request a report. Here is how?

Get instant CIBIL score and CREDIT score (INDIVIDUAL)

There are four credit rating agencies authorized to gather information and give credit scores in INDIA.

Credit scores are based upon the credit repayment performance of individuals or companies and parameters set upon internal parameters of the respective credit bureau.

Since, as per RBI, Credit bureau agencies are obliged to give customers one credit report per the calendar year, customers can get four reports from four agencies in a calendar year.

Details of Credit bureau …

1. Equifax India and Equifax Analytics Pvt Ltd. (EAPL)
   1. It is a multinational company which is authorized to provide the credit report
   2. To get your free copy, get a request form filled along with ID proof and address proof and send the scan details to their mail ID or send a hard copy to their official address.
   3. To get a credit score, Click here
2. Experian India
   1. You need to provide your PAN CARD, Mobile number, and address details
   2. The process is online, and the report is instantly generated
   3. To generate the credit report, Click here
3. TransUnion CIBIL Limited
   1. Provide your PAN NUMBER, mobile number, and EMAIL ID
   2. After OTP verification you can see your CIBIL score
   3. Check your CIBIL score, click here
4. CRIF High Mark
   1. Here also one can get your credit score for free
   2. First, you need to create your log in and provide personal details like PAN, address, etc
   3. The company will send the report to your email within 24 hours
   4. To generate the report, Click here

My suggestion would be to use the Experian India service. The website is the most user-friendly and you get an instant detailed report of your all credit history including your current and past loans and credit card history.

CIBIL report is elementary in nature as they provide only the three-digit number. There is no further information regarding your loan records or payment history. for a detail credit report, the customer needs to buy the report.

The CRIF website is not as user-friendly and takes lots of effort and revisits to generate the necessary reports. there is no instant generation of the report. the details are emailed to the customer email id.

Equifax is offline. The customer has to either scan their documents or send a physical request to the company to get their report.

You can get four reports free in a calendar year. So, use these services effectively to see your performance and if any course correction required.  My suggestion would be to get a report from each one of the credit bureau every quarter.

What is the CREDIT score and CIBIL score?

The Credit Information Report (CIR) forms the basis for credit score. Information collected from financial institutions like banks and other lending institutions on individual loans and credit card payments history forms the basis of the Credit Information Report (CIR).

CIR contains data on the entire spectrum of the customer’s credit-related activity including details on repayment record, credit card limit, previous application for loans or credit card, any settled or written off loans and any other credit related activity. This information is updated monthly.

Credit Score is a 3-digit numeric summary of your credit history, derived by using details found in your CIR Report and ranges from 300 to 900. The value is determined by a credit bureau based upon their internal assessment.

The value closer to 900 indicates that your credit history in terms of loan repayment and credit card usage is excellent. Good credit score increase your chance of loan approval with a favorable rate of interest.

For lenders, it indicates the probability of default by the borrowers.

Why is a credit score important?

Today most of the credit lending institutions use internal and external information and criteria to assess a loan application.

1. The credit score provided by various credit bureau has become a popular tool for most of the lending institutions as they provided reliable and universal information.
2. As the credit bureau gathers information from all companies and combines lending and payment history, it becomes a ready reckoner for the applicant.
3. This information becomes more credible as it is updated every month.
4. CIBIL shows that those who have 750 plus scores got loan 80% of the times
5. Good credit score applicants can bargain for better interest rates on loans.

What factors impact the credit score?

The purpose behind creating a credit score is to aid lending agencies in making decisions for accepting or denying loan applications to a loan applicant.

Lending institutions prefer borrowers with low outstanding balances, long credit history, and high credit scores.

Five factors impact your credit score and CIBIL score.

1. Payment History – Late payment or default on interest or principal impacts negatively
2. High credit utilization – high utilization of credit card or overdraft facility shows lack of cashflow
3. Credit Mix – Secured loans (Home loan, Car loan) and unsecured loans (personal loan, credit card) should be more in favor of secured loans
4. Multiple inquiries
   1. regularly applying for Loans and credit card shows a lack of income
   2. INQUIRY by lending institutions reflects in your credit report negatively
   3. Customers making inquiries by themselves do not show in the credit report and does not impact the credit score negatively.
5. Co-borrowed or guaranteed accounts – loan accounts where customers are joint applicant or guarantor, in case of default or delayed payment,it impacts customer credit score

To increase your credit score, one has to keep in mind the above points and avoid repeating the negatively impacting actions.

Credit score for Business loans (MSME)

Today in India, there are over 63.05 million micro-enterprises,0.33 million business in Small category, around 5000 in the medium category. These large numbers of companies need an evaluation parameter to get formal credit.

To evaluate businesses, various authorized credit bureau in INDIA has devised rating of business based upon multiple parameters like the capacity to pay loans, collateral, capital by owners deployed, key financial ratios, past loan history and frequency of request for loans.

The classification of MSMEs based on credit exposer and annual turn over is as follows

Constituents of business credit score

Credit bureaus provide the score for partnership and limited liability companies are on a scale of 1 to 10, where 1 is the best rank that can be achieved.

Proprietors, the commercial score range between 300-900 and have been designed to provide a comprehensive view of the financial obligations of proprietors.

The rank is only provided to businesses that have credit exposure of Rs. 10 lakhs to Rs. 50 crores.

The score is based upon a company credit report (CCR). CCR is created from data submitted by lending institutions across India to credit bureaus. The data includes the previous business as well as personal loans availed by companies and their promoters, directors, etc. A credit report also provides payment history as well as loans availed.

The CCR and the CIR play a critical role in determining loan approval because they provide an objective description of a company’s financial strength to a lender.

Where to use these business credit scores?

Businesses can use this information to avail different kinds of loans for their working capital or expansion of the company.

There is a push from the government for collateral-free business loans for new and budding entrepreneurs through MUDRA loans.

For below mentioned commercial loans, these credit scores are critical.

1. Term Loan
2. Bank Overdraft Facility
3. Letter of Credit
4. Bank Guarantee
5. Lease Finance
6. SME Collateral free loan
7. Construction Equipment loans
8. SME Credit Card
9. Commercial Vehicle Loans

The credit score closer to one argue well for companies. It shows strength in their balance sheet, good cash flows, and more importantly, regular payment of loans availed either at the company level or individual level by company owners.

Those companies which have a good credit score, closer to 1, can ask for favorable rates and terms and conditions from lending institutions.

Conclusion

Digitization of most of the records and transactions has created a massive database of individuals and companies. Digitization creates audit trails for everyone and shows their behavior and financial strength.

Synchronization of the data from various companies and institutions has helped to create audited and updated records of individuals as well as companies. Credit bureaus have been authorized to compile this information and create scores.

Individual customers can avail credit report once in a calendar year free from credit bureau companies. A credit score helps them to cross verify their loan and credit card information. I would recommend EXPERIAN credit bureau online service for free report generation.

For Corporates, now it has become a necessity to create a trail of their financial transactions so that lending agencies know their performance and behavior and can get formal credit easily.

Corporates intending to issue bonds or debentures to raise money through stock market also need rating to raise money.

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