With RBI approving in principle to three more credit bureaus, including High Mark and Equifax, credit reports are back in the news. Learn how your credit score is calculated and it will help you gain access to faster credit at low interest rates.
The Score Break-up
While the score varies from 300-850, in a mature market like the US, the bulk of the population, 45%, falls in the 700-799 category.
Payment history, 35%, Credit utilisation: 30%, Credit history: 15%, New credit inquiries: 10%, Credit mix: 10%
These weightages are for the score developed by the Fair Isaac Corporation (FICO), which has tied up with High Marks in India. These will vary for credit bureaus according to the scoring system they use.
Payment History: The most important factor is how promptly you pay your bills. Late payments, rolling over your debt regularly and defaulting on your EMIs will have a negative impact.
Credit Utilisation: The amount of debt you have in comparison to your credit limit is known as credit utilisation. Ideally, your credit card balance should be less than 30% of your credit limit.
Credit History: A longer credit history will help minimise the impact of negative factors like an occasional late payment. Learn to balance the advantages of long-standing, but defunct, bank accounts with the growing risk of identity theft.
New Credit Inquiries: Don't apply for unnecessary credit. This can signal that you are taking on a lot of debt, which worries lenders.
Credit Mix: Having different types of banking relationships is a good idea. This factor is only significant if you don't have too much information on which to base your score.
What if my credit report contains errors?
CIBIL, the only functioning credit bureau in India, does not grant individuals access to their credit scores. So the first time you would hear of a problem with your score would be when a bank declines your application citing a poor track record. If you are convinced that your credit history is impeccable, here is what you should do:
- Request the bank to take note of the changes and report it to CIBIL.
- Get the control number of your credit report from the bank, then contact the CIBIL helpdesk (1800-224-225), quote this number and register the error.
WHAT IS YOUR CREDIT SCORE?
Now that you know the factors that determine the credit score, take this quiz for an estimated range of your FICO score, which varies from 300 to 850. The higher the score, the better your credit report.
How many credit cards do you currently own?
A. I have never had a credit card
D. 5 or more
How long ago did you get your first credit card?
A. Between 6 months and 5 years ago
B. 5-15 years ago
C. 15-20 years ago
D. More than 20 years ago
How long ago did you get your first loan?
A. Between 6 months and 2 years ago
B. 2-10 years ago
C. 10-20 years ago
D. More than 20 years ago
How many loans or cards have you applied for in the past year?
A. 6 or more
How recently have you taken a new loan or credit card?
A. Can't remember
B. Less than 3 months ago
C. Between 3 and 6 months ago
D. More than 6 months ago
How many of your loans and/or credit cards have a balance?
A. 9 or more
When did you last miss a loan or credit card payment?
A. In the past 3 to 6 months
B. Six months to 4 years ago
C. More than 4 years ago
D. I have never missed a payment
What is your longest period of delinquency for a loan or credit card payment?
A. More than 90 days
B. 60-90 days
C. 30-60 days
D. Less than 30 days
How many loans and/or credit cards are currently overdue?
A. More than 2
What per cent of your total credit card limits do your credit card balances represent?*
A. Over 80%
*Divide the total amount due on all your credit cards by the total sanctioned credit limit on them.