September 27, 2024 · 11 mins read
Santosh Kumar
Would you lend money to someone whose financial responsibility is unknown to you? No, right? Then, have you ever thought of how banks lend loans to people they never knew before personally? Are they taking big risks? No, not really. When you approach a bank or any other financial institution asking for a loan, they check your creditworthiness before lending money. Only if they are sure that the person can repay the amount on time will they approve the loan or reject the application or charge a higher interest rate. They can conclude about your creditworthiness based on your credit score. The credit score is not just limited to individuals. Even for business loans, lenders refer to the credit scores of companies.
A credit score is a three-digit score given by credit bureaus to signify your creditworthiness based on your credit history. Factors like payment history, credit utilisation, credit length, credit mix, and recent credit inquiries are considered when calculating this score. Although the factors considered for calculating the credit score are the same, each credit bureau follows a different strategy in calculating the credit score, and hence, you may get different CRIF and CIBIL scores. The more the credit score is, the faster your loan and credit card approval process is. Also, the banks will be ready to provide you with loans at lower interest rates.
You are wrong if you think that credit score is valid only for individuals. Even banks and financial institutions refer to companies' credit scores before sanctioning business loans. Unfavourable public records, bankruptcy, and tax liens are additional factors that negatively impact companies' credit scores. While some of these factors will be reflected on your company's credit report for a few years, the unpaid tax lien will be reflected forever. Thus, maintaining a good score for yourself and your company is key to keeping yourself ready for future credits and loans.
In India, the Reserve Bank of India (RBI) has licensed a few credit bureaus to compute credit scores, the main ones being CIBIL TransUnion and CRIF High Mark. In this blog, we will dive a little deeper into the details of CIBIL and CRIF scores, the concept behind each score calculation, and the difference between the two.
CRIF credit score is a three-digit score given by CRIF High Mark Credit Information Services Pvt Ltd to prove your creditworthiness. CRIF High Mark Credit Information Services Pvt Ltd was incorporated in 2005 and started its operation in 2007. With over 120+ crore credit records as of July 2018, the CRIF High Mark is RBI-approved and serves retail, agriculture, rural, MSME, commercial and microfinance sectors. The formula for calculating the CRIF credit score takes into account these factors.
1. Payment History: This indicates how well you repay your credits on time. So make sure to avoid late payments and never miss a payment so that you will be future-ready with a good CRIF score to avail of financial credit-based products.
2. Credit Exposure: It is known as the credit utilisation ratio and represents how much you are using your credit. That is, it gives a clear picture of how much you depend on your credit to meet your financial needs. Depending too much on credit negatively impacts your score. According to experts, using 30% of your credit limits is an ideal level.
3. Credit Type: Having a good mix of various credit types implies that you can responsibly handle various financial situations.
4. Credit Duration: A longer credit history will positively impact your score, as the bureau will have sufficient data to analyse your financial activities.
5. Credit Inquiries: When you apply for a loan or credit card, banks and financial institutions will seek your credit information from credit bureaus, which are called hard inquiries. Hard inquiries can negatively affect your score, so avoid applying for multiple loans simultaneously.
Here is the list of various CRIF credit score ranges and what they mean.
1. Excellent score- 700 to 900
2. Great score- 650 to 700
3. Low score- 500 to 650
4. Very low score- 300 to 500
Not only individuals but also companies can use CRIF High Mark credit scores to prove their financial responsibility while applying for loans for business development or improvement. The company credit score also ranges from 300 to 900, and a score above 660 is considered non-risky, while a score below 600 is considered a poor score by most lenders.
Read More: Is 720 a Good CIBIL Score?
CIBIL score is the three-digit score given by Credit Information Bureau (India) Limited based on your previous financial activities. It ranges from 300 to 900. CIBIL Limited is part of TransUnion, an American multinational group. Incorporated in 2000, CIBIL launched its services in 2004 in India. With credit files on 600 million individuals and 32 million businesses, CIBIL is one of India's best four credit bureaus. Usually, a score of more than 750 is considered an excellent score.
We will understand how the CIBIL score is calculated. It is mainly based on factors like payment history, credit exposure, credit type, and duration.
1. Payment History: contributes to around 30% of your credit score and is the most important factor that makes or breaks your score. Never miss a payment or even delay a payment.
2. Credit Exposure: Credit exposure, also known as credit utilisation ratio, contributes 25% of your credit score. Avoiding using more than 30% of your credit limits is great for raising your CIBIL credit score.
3. Credit Type and Duration: A good mix of credits and a longer credit history will contribute to around 25% of your CIBIL score.
4. Other factors: Twenty percent of your credit score is based on various other factors, such as hard inquiries and loan rejections.
Here is the list of various CIBIL credit score ranges and what they mean.
1. Excellent score range- 750 to 900 2. Good score -650 to 750 3. Average score- 550 to 650 4. Poor score- 300 to 550
While the CIBIL score range for individuals is the same as that of the CRIF score, there is a major difference in the score format for companies. For companies, the CIBIL rank falls on a scale of 1 to 10, with 1 being the best and 10 being the worst.
Read More: How Students with No Income Can Get a Credit Card
The CRIF and CIBIL scores for individuals range from 300 to 900. On the other hand, the CRIF score of companies ranges from 300 to 900, with 660 as the best score, while CIBIL rank ranges from 1 to 10, with 1 as the best rank. Though both scores signify your financial responsibility via a 3-digit score, both vary in a few parameters. Let us see in detail the differences between these two scores.
Parameter: Credit Bureau
CRIF Score: 3-digit score by CRIF High Mark Credit Information Services Private Ltd.
CIBIL Score: 3-digit score by Credit Information Bureau India Limited
Parameter: Best score
CRIF Score: Above 700
CIBIL Score: Above 750
Parameter: Incorporated Year
CRIF Score: 2005
CIBIL Score: 2000
Parameter: Service Launch
CRIF Score: 2007
CIBIL Score: 2004
Parameter: Credit Details
CRIF Score: Over 120+ crore credit records
CIBIL Score: With credit files on 600 million individuals and 32 million businesses
Parameter: Location Span
CRIF Score: Operating in over 50 countries across Europe, America, Africa and Asia.
CIBIL Score: Operates in India
Parameter: License
CRIF Score: Licensed by RBI
CIBIL Score: Licensed by RBI but owned and maintained by TransUnion
Parameter: Score Calculation
CRIF Score: More weightage is given to the length of credit history and credit type. Hence, having a good credit mix and older credit accounts increases your score.
CIBIL Score: More weightage is given to recent credit activity and credit inquiries. Hence, timely payments and avoiding multiple loan applications will help you increase your score.
Parameter: Company credit score range
CRIF Score: Ranges from 300 to 900
CIBIL Score: CIBIL rank ranges from 1 to 10
Parameter: Best company credit score
CRIF Score: A score above 660 is desirable, while below 600 is considered risky.
CIBIL Score: CIBIL rank of 1 is the best, and 10 is the worst.
Read More: CIBIL Score Role in Loan Application Process
1. As an individual or a business owner, a good credit score has become a prerequisite for availing financial products with the least effort and time. So follow the tips below to stay in the good credit score range.
2. Late payments are as dangerous as missed payments and negatively affect your score. So, set reminders to avoid such situations.
3. Opt for credits that will fit within your budget so that you will have sufficient funds to repay your debts and loans.
4. Use almost 30% of your credit card limit to give the impression that you do not over-rely on credits.
5. Old is gold. If you have older credit accounts with a good payment history, try not to close those accounts. Instead, you can opt for downgrading or upgrading to meet your financial needs.
6. Your payment history is not the sole factor that affects your credit score. If you have co-signed for any loans, then the repayment details of those loans also will affect your score. So make sure you co-sign for those who are creditworthy and will promptly repay the loan.
7. Check your score frequently to ensure your credit report is error-free. If you find any mistake, inform the credit services immediately along with the proof.
Read More: Can Gold Loan Affect Your CIBIL Score?
The credit score is one key factor that gives a clear picture of your or your company's creditworthiness. A few credit bureaus analyse your credit details and score you with a three-digit number. CRIF High Mark and CIBIL TransUnion are two of the best credit bureaus in India. Both of these credit agencies acquire data from various lenders and follow different algorithms to calculate the credit score. Different banks may refer to different credit scores to analyse your financial responsibility and to make decisions about your loan and credit card application. So, make sure to take the necessary steps to keep your CRIF as well as CIBIL credit score good enough to stay risk-free in times of financial emergencies.
Will my credit score be equal in both CRIF and CIBIL?
Your CIBIL score and CRIF score may be different, as both bureaus use different strategies to calculate scores.
Why do I score differently when my credit history is the same?
One reason for different scores is the different algorithms or formulas each bureau uses to calculate them. Another reason is that not all banks or lenders report to all the credit bureaus about your payment details and financial activities. Hence, certain bureaus may miss your previous payment details, which may result in a different score.
Is there a possibility that my CIBIL or CRIF score was wrongly calculated?
Both credit Bureaus compute scores using different algorithms, but they are based on the information available about you. If there is any incorrect information in your credit report, then obviously, the score can go wrong.
What should you do if you get the wrong information?
Checking your credit report frequently can help you identify any errors in your report. Under such error conditions, immediately contact the credit agencies and report the error along with some documents to prove your stand. The agency will analyse and do what is necessary. Correcting any mistakes immediately will help you maintain a good score.
Do banks look for CIBIL or CRIF scores?
Choosing which credit score to rely on for assessing the borrower's creditworthiness is based on the bank's or the financial institution's policy. Apart from the credit score, they may look at your salary and employment details to sanction loans or approve credit cards.
How could I improve my credit score?
Avoid late and missed payments, use your credits wisely, add variety to your credit mix, don't close your old accounts, exercise precaution while co-signing loans, and, more importantly, check your credit report frequently. If you find any error, report it to the appropriate authorities and resolve it as early as possible.
While computing the company credit score, will my personal credit score be considered?
Usually not. However, if you are a sole proprietor, your score may be considered as your company's creditworthiness, which is directly dependent on your creditworthiness.
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