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May, 2016

Credit Score Basics – Why is credit score so important for SMBs?

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Recently we have received lot of queries regarding credit scores and the role these play in getting loans of any kind. So here is an easy guide to comprehend credit scores..

1What is a credit score and why is it important?

Your credit score is a number that is generated by a credit bureau and is used by lenders to assess your credit worthiness whenever approached for any kind of loan. It is generated by using records of your repayment history. Most of the lenders report your credit track records to credit bureaus which in turns calculate and maintains your credit score. There are three other credit bureaus in India apart from Credit Information Bureau (India) Limited(CIBIL), these are Experian Credit Information Co. of India Pvt. Ltd, Equifax Credit Information Services Pvt. Ltd and CRIF High Mark Credit Information Services Pvt. Ltd.

What this means is that when you want to take a loan or a credit card, the lender may access your credit score and credit report from any of these credit information companies along with CIBIL. Each of these bureaus has different scoring models; so your score can vary from one bureau to the other. The good news however is that these credit scores are highly correlated.

So if your credit behaviour is considered good by one bureau, it will be considered good by the others as well!

2. How can I know my credit score?

You can apply for a credit score online at CIBIL website at The 4 step process is as below:

a) Fill a short online request form

b) Pay fees online (using debit/credit card/cash card/net banking)

c) Authentication – Answer 3 – 5 questions about your Loans and credit cards to proceed

d) If authentication is successful, you can instantly access your credit score and credit information report (CIR). The same will also sent to your mail id instantly. If authentication is unsuccessful, follow the instructions to complete the process and to receive your credit score and CIR by express delivery.

You can follow similar steps at other credit bureaus.

3. I have generated my credit report. How to read it?

The data in the Credit Information Report (CIR) is arranged in multiple sections as follows:

a. CIBIL Transunion Score – Your Credit score between 300 – 900 is calculated and shown in the first section of the report.

b. Personal Information – This section contains information such as name, date of birth, gender and identify proof details like PAN card etc..

c. Contact Information – Here all your addresses (residential, official etc..) are listed that are reported by various lenders who may have captured the same at the time of lending to you. Similarly it contains all your telephone numbers and email addresses.

d. Account information – This section has details of each of your credit account such as credit card, loans etc. The section displays the status of each account with the lender -whether it is regular account (you have been paying on time) or doubtful or sub-standard or written off(you have not paid back the loan eventually).

e. Enquiry Information – This section contains details of all the credit enquiries done in the last few years by the lenders whom you may have approached for credit and authorized to conduct a credit enquiry on your behalf. The details include lender name, date of enquiry, enquiry purpose and enquiry amount.

4. My credit score is 400, will I get a loan if I apply for one?

Usually credit scores range between 300 to 900. Higher the score, more the eligibility for a loan.  ~ 80% of the approved loans are for applicants with scores greater than 750.

However, often rather than looking at score as a number, lenders look at the patterns, so even if your scores are low (say because you had some credit card problem), you can get a loan, depending upon the reason of those missed payments.

5. I have never borrowed or taken a credit card, So my credit score will be good?

Having no loans means having no credit track record, meaning the bureau will not have any information about your credit repayment track record. This kind of condition is as difficult as having a poor score. Because of no repayment history lenders will find it difficult to perform credit assessment and you may find it difficult to get a loan when you need one. Therefore, its good to avail credit and use it responsibly.

6. There seem to be some errors in my credit report? Can my credit score be wrong?

Yes, it is possible. Sometimes when your information is not reported correctly by your lender(s) or due to some other reason, your credit score, your financial details or your personal details may be incorrect. You need to raise a dispute resolution request with the bureau by filling a dispute resolution form available on their websites to correct the same.

7. How can I improve my credit score?

–  Credit score captures your credit history over a period of time, therefore it can be improved over a period of time.

– The first step would be to clear your past dues with banks/credit card companies and obtain a no dues certificate.

– Thereafter, you need to build some good credit history, use your credit card regularly, pay your current credit card bills /loan instalments regularly.

– Also do not apply for too many credit cards/loans at the same point of time as it will make you look credit hungry and affect your score.

8. How can I maintain my credit score?

– Use your credit lines regularly, this helps in building a good credit track record.

– Pay all loan instalments on or before due date, avoid over dues.

– Do not apply for loans at multiple lenders, as too many loan enquiries weakens your credit score.

– Understand your borrowing capacity and always borrow within your repayment limits.

– Always know your credit score and check if there are any mistakes in the calculation.

– Report and get the errors rectified through the credit bureau.

Overall things such as a having a secured loans repayment track record, using your credit cards within limit, maintaining an optimum number of active loans or credit cards will have a positive impact on your credit score, so you won’t have to worry when you need a loan urgently!

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