Applying for a loan from a bank or other financial institution can be a strenuous task for many. Those who have applied for bank loans before know of the process by which their loan application is either considered fit or otherwise rejected by the lending organisation.
All lending institutions like banks and non-banking financial companies (NBFC) require the loan applicants to submit some documents to assess their creditworthiness.
What the lending institution wants to know is the loan applicant's ability to pay back the loan amount as well as their willingness to do so in regular payments. The latter requires assessing the credit score of these borrowers.
The credit score or report of the loan applicants is generated by four credit information companies (CIC) in the country. The CICs are also called credit bureaus.
The four companies that provide detailed credit reports and proprietary credit scores are CIBIL TransUnion, CRIF High Mark, Equifax, and Experian.
The Reserve Bank of India (RBI) has directed these credit bureaus to provide a full free credit report once a year. It includes the credit score once between January and December if the credit history is available with the CIC.
A credit score or as it is referred to as the CIBIL score is a three-digit score that provides the summary of any loan applicant's credit history. The CIBIL score ranges from 300 to 900 and any score above 700 is considered ideal. Also, a higher CIBIL score suggests that the applicant has a good credit history and past repayments.
This numeric summary of credit history provided by the four CICs is based on such factors as the track record when it comes to repayments of loans in the past. The track record suggests whether the payments were made on time or not.
The score also takes into consideration previous loan settlements. A low loan balance may mean healthy credit usage while a high loan balance can reduce the overall credit score.
Any loan applicant can apply to get their credit score report from the four credit bureaus. They can visit the website of any of them and submit some details like name, date of birth, and PAN. Some furnish the credit score report immediately while others can take a day.