DYK:There’s no uniformity in credit score for new borrowers
Though the process to calculate score is similar, the way the scores are presented to will differ
This week, Equifax Credit Information Services Pvt. Ltd refreshed its credit scores to customers who are first-time borrowers. This is in line with the recommendations made in Reserve Bank of India’s (RBI) committee report, Data Format for Furnishing of Credit Information to Credit Information Companies, released on 22 March 2014. In the report, RBI had said that first-time borrowers should not be denied credit due to lack of history. Credit score is a number based on your credit history, which is a summary of your past and current borrowings and repayments.
CREDIT SCORE FOR THOSE NEW TO CREDIT
This credit score is for those who have never taken a loan. Credit information companies including Credit Information Bureau (India) Ltd, or Cibil, the largest collector of databases on borrowers, Experian Credit Information Co. India Ltd and Equifax Credit give credit scores for no-loan customers. On 3 March, Equifax Credit refreshed this score.
Parameters: In case of new customers, a credit information company (CIC) doesn’t have historical data to understand a customer’s financial behaviour. Hence, CICs rely on data such as demography, location, age and sample performance to calculate the score. For instance, if you are a new-to-credit customer who lives in Mumbai and gets an annual salary of 15 lakh, the credit bureau will look at your personal details and compare them with its existing customers to form a pattern. Based on this pattern, a score will be assigned to you. That means, your score will be similar to those with similar details as you.
Score: Though the process to calculate this score is similar across all CICs, the way the scores are presented to you will differ. Unlike the credit score for customers who have credit history, there is no uniformity in the way score is given to customers who are new to credit. For instance, Cibil measures first-time borrowers on a risk index of one to five. One is the highest risk of default and five the lowest.
Cibil was the first to launch no-loan scores for its customers. In May 2014, Experian followed. It measures the score on a grading scale of one to six—one meaning highest risk of default, and six, the lowest. Equifax gives a score in the range of 300-900, which is similar to what a person with a credit history would get.
While credit bureaus have been asked to score customers with credit histories in the same way—between 300 and 900—to make the process uniform so that it’s easier for customers to understand, the same rule does not seem to apply to scoring of no-loan customers.
HOW MUCH DOES IT COST?
As of now, only Cibil and Equifax give credit score to individuals; the others cater to requests from financial institutions only. Cibil currently charges 470, while Equifax charges 138 for credit report and 400 for credit report and credit score. Experian’s credit scores are available only to financial institutions, but will be available to individuals shortly.
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