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Understanding Credit Scores and Credit Ratings in India
Finance
29 Mar 2024
Understanding Credit Scores and Credit Ratings in India

### Understanding Credit Scores and Credit Ratings in India #### **Credit scores v/s Credit rating** Credit scores and ratings are used by lenders in deciding to extend credit to a borrower and in determining the terms of the contract. Five primary factors are included in the proprietary algorithm used to get the score and rating: - Payment history: This includes the presence or lack of such information as delinquency, bankruptcy, court judgments, repossessions, and foreclosures. - Debt burden: This includes credit card debt-to-limit ratios, the number of accounts with positive balances, and the total amount owed. - The length of credit history: This includes the average age of accounts on the credit file and the age of the oldest account. - The types of credit used: This includes the use of installment payments, consumer finance, and mortgages. - New Credit Inquiries: This includes “hard” credit inquiries when consumers apply for new loans but not “soft” inquiries, such as for employee verification or self-checking one’s score. #### **Credit scores in India** Credit scores are used primarily in the retail lending market for small businesses and individuals. National credit bureau in India: TransUnion CIBIL (formerly CIBIL): The most well-established credit bureau in India. ##### **Significance of CIBIL Score:** -Improved Financial Awareness -Easier Access to Credit -Negotiating Power -Smoother Loan Approvals and Better Interest rates -Employment Background Checks -Tenant Screening -Insurance Premiums CIBIL Score Range Rating 300 - 550 Poor 551 - 650 Average 651 - 750 Good 751 - 900 Excellent ### **Credit Ratings in India** Credit ratings are used in the wholesale market for bonds issued by corporations and government entities, as well as for asset-backed securities (ABS). ##### **Credit rating agencies in India:** -CRISIL -CARE -ICRA -SMREA -Brickwork Rating -India Rating and Research Pvt. Ltd. -Infomerics Valuation and Rating Pvt Ltd. ##### **Significance of Credit ratings:** -Influencing Borrowing Costs -Investor Confidence -Access to Capital Markets -Regulatory Compliance -Risk Management -Economic Stability -International Comparisons <img src="/Images/blog_images/blog_021_01.png" alt="alt text" title="Title" style="width:500px;" />

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