Who Issues Credit Ratings or Credit Scores
Credit scores measure individual creditworthiness, while credit ratings assess entities. Both credit scores and credit ratings are issued by banks, lenders, and agencies like Experian, Equifax, and major rating firms.
Credit scores assess an individual’s credit behaviour, while credit ratings evaluate the financial strength of companies or governments. The former impacts personal finance while the latter impacts investment choice. Credit scores are issued by bureaus, such as Experian or Equifax, and ratings by agencies such as CRISIL, ICRA, or S&P.
What is a Credit Score?
A three-digit numerical measure of a cardholder's creditworthiness is called a credit score. These figures vary from 300 to 900. The closer the score comes to 900, the more creditworthy the cardholder is. The best credit score is between 700 and 900, thus one should attempt to maintain that range. This score is produced by a mathematical algorithm that uses the data in the credit report and is especially made to forecast risk.
The FICO credit score is the most widely used of the many models used to create credit scores. This score is produced by three significant credit card bureaus, and these three scores are frequently used. Experian, Equifax, and TransUnion are the credit bureaus who analyses the credit-related information to access the creditworthiness. The following data is used to create a credit score:
- History of payments
- Amount(s) that is owed
- New credit
- Types of credit that has been used
- Length of credit history i.e., time since account activity was started
Free credit reports are available to customers, but not free credit scores. The cardholder must pay a minor fee to the credit card agency in order to obtain his or her credit score.
What is a Credit Rating?
A credit rating is an examination of all the credit risks connected to a financial company. This is granted to that specific firm or entity based on their qualifications, the soundness of their financial statements, and the amount of lending and borrowing the company has done.
This rating, which comes in the form of a thorough report, aids other businesses or rating agencies in determining the entity's solvency. Numerous organisations, including Moody's Investors Service, Standard & Poor's, and ICRA, offer ratings based on thorough investigation.
Difference between Credit Rating and Credit Score
A Credit Score and credit rating is sometimes used interchangeably but there are certain significant differences. These are -
Aspect | Credit Rating | Credit Score |
Definition | Denotes the creditworthiness of business entities and government institutions | Denotes the creditworthiness of individuals, as well as business entities and government institutions |
Determined based on |
|
|
Format | Expressed in letters, from AAA (highest) to D (lowest) | Expressed in numbers, ranging from 300 (lowest) to 900 (highest) |
Improvement Methods |
|
|
Who Issues Credit Scores in India?
The Reserve Bank of India has provided authorization to companies that have registered under The Credit Information Companies (Regulation) Act, 2005 to provide credit scores or ratings based on the past performances that have been reported by numerous member credit institutions and banks. CIBIL or Credit Information Bureau India Limited is India's leading credit information bureau. Other key players in India are Equifax and Experian. Credit scores are issued by the above three bureaus. The most sought-after bureau in India is CIBIL, since it is the oldest player in the country, but lenders also use Equifax and Experian and hence it is mandatory for lenders to provide data to all the above bureaus.
TransUnion CIBIL™
- One of India’s leading credit bureaus, maintaining credit data for individuals and businesses.
- Provides credit scores ranging from 300 to 900, commonly used by lenders to assess creditworthiness.
Equifax
- A well-known credit bureau offering credit reports and scores to consumers and lenders.
- Scores also fall between 300 and 900, with higher values indicating stronger credit health.
Experian
- A global credit information company operating in India.
- Generates credit scores based on a person’s repayment history and overall credit behavior.
CRIF High Mark
- A newer but fast-growing credit bureau in India.
- Supplies credit reports and scores to financial institutions and individual consumers.
A credit score or rating is a direct indicator of the individual's or company's credit health. In case a reliable credit rating or credit score is maintained, it makes it easier for them to receive loans and additional credit cards without any hassle and terms that are favorable to the customer. A good score or rating is an indicator that the individual is a low-risk customer which is always an attractive prospect to potential lenders.
How can Individuals get their Credit Scores?
Applicants can follow the steps given below to receive their credit scores -
- They can upload all the required information in any of the three credit bureaus - CIBIL, Equifax and Experian - and avail themselves of their credit scores.
- They can also log on to the website of any of the three bureaus and request for the same.
- View your score for free through credit score websites by creating an account. The score type and insights vary, and some platforms offer paid features or credit product promotions.
- A free FICO® or VantageScore credit score is offered by many credit card issuers and lenders, which can be accessed online or via a mobile app and is often updated monthly. So, check if your creditors offer this service automatically or require enrollment.
- A nonprofit credit counselor can provide a free consultation regarding queries related to budgeting, purchase of house, credit or debt. It also helps you check your credit score and offers guidance to improve it.
What is the Credit Bureau?
The details about credit bureaus are given below:
- An agency that collects and analyses credit-related data, for example loans, credit cards, overdrafts, repayments, etc.
- Data sources include collection agencies, public records, lending institutions, and more.
- The main purpose to analyze the information is to create a profile of a person’s or business’s creditworthiness, including repayment behavior, defaults, and debt-to-income ratio.
Main Functions of Credit Bureaus
The primary functions of a credit bureau are mentioned below:
- Gather credit data from banks, NBFCs, credit companies, etc.
- Analyze data to compute a score that often ranges between 300 to 900.
- Produce detailed reports covering repayment history, inquiries, defaults, etc.
- Provide insight to lenders so they can lend responsibly.
- Help detect inconsistencies, identity theft, and fraudulent credit behavior.
How Do Credit Bureaus in India Work?
The details about how credit bureaus work in India are given below:
- Borrower data is submitted to credit bureaus by the lenders.
- Bureaus pull in public and private records and collect and store this data.
- Using this data, they generate a credit report and compute a credit score.
- To make the lending decisions, the report is shared with lenders who use it to assess risk.
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FAQs on Who Issues Credit Rating or Credit Scores
- Is it possible for an individual to have a credit rating?
Yes, it is possible for an individual to have a credit rating. A credit rating evaluates the credit risk of a potential debtor (a person, a corporation, a firm, or a government), projects their capacity to repay the debt, and makes an implied prediction about how likely it is that the debtor would default.
- How can I obtain an individual credit rating?
You can access the credit scores by uploading all the necessary information to any of the three credit bureaus of CIBIL, Equifax, and Experian.
- Can someone achieve a credit score of 900?
On some scoring schemes, a credit score of 900 is the maximum, but this figure isn't always achievable. At some point, attempting to obtain the greatest credit score is just unrealistic because only 1% of the population can earn a credit score of 850.
- Do credit scores and credit ratings impact interest rates?
When we apply for a loan, one of the most crucial variables that lenders take into account is our credit score. Not just to be eligible for the loan itself, but also for the requirements: Generally speaking, the better conditions and cheaper interest rates you'll qualify for, the higher your credit score.
- How are credit scores and credit ratings used by lenders?
Credit scores are frequently used by lenders to assess your credit risk. Your credit report's data is used to compute your credit score. When granting new or additional credit to a consumer, lenders are typically less risky when the consumer has a higher credit score.
- What are the factors affecting credit ratings?
The factors affecting credit ratings are high debt utilization ratio, delayed payments, short credit history, and numerous newly opened accounts.
- Who determines credit ratings?
To assess an individual's creditworthiness and assign a credit score, credit bureaus in India determines the credit rating by collecting and analysing data from various financial institutions.
CIBIL Score Requirements for Loans
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