Credit score and Cibil score: Know the difference

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Loan applicants may find terms such as credit score, CIBIL score, and credit report extremely confusing.  Banks are now placing high importance on a loan applicant’s credit history. They prefer to lend to borrowers with a good credit history to reduce the risk of default. Banks use an applicant’s ‘credit score’ to determine whether or not the applicant is a creditworthy borrower. That said, as a loan borrower, you’ll come across a variety of terms, including CIBIL score, credit report, etc. What distinguishes these terms? Let us examine these terms in detail in order to understand their distinctions.

Credit Score

In India, your credit score is a three-digit number that summarises your credit history. A credit bureau considers your credit history and uses its own algorithm to calculate a three-digit score, typically between 300 and 900.

A higher credit score indicates that you have been more responsible with credit in the past. Most lenders in India prefer to lend to borrowers who have a credit score of 700 or higher.

Cibil score

People frequently make the mistake of trying to equate credit score to CIBIL score. They incorrectly use the terms interchangeably. The Indian government has authorised four credit rating agencies to evaluate individuals’ creditworthiness. TransUnion CIBIL, Experian PLC, HighMark Federal Credit Union, and Equifax Inc. are the companies involved.

TransUnion CIBIL is the most widely used of these credit rating agencies. A high CIBIL score demonstrates both your financial discipline and your integrity.

Each time you apply for a loan or credit card, your most recent credit score (within the last six months) is analysed. Generally, a score of 700 or higher is considered excellent, though some banks set the bar high, and others are content with lowering the bar.

End note

Maintaining financial health is similar to maintaining physical fitness. To be healthy, one must start exercising every day; similarly, one must monitor all financial parameters to maintain a good credit score. Don’t forget that a strong credit score can go a long way toward assisting you in accumulating wealth. Therefore, don’t forget to check the scores on a regular basis.