Credit score says how likely you are to repay a loan

What is a credit score?
A credit score is a 3-digit numeric summary of your credit history. The score is derived by using the details found in the “Accounts” and “Enquiries” sections on your Credit Information Report (CIR) and ranges from 300 to 900 points.  The closer your score is to 900, the more favourably your loan application will be viewed by a lender. The score plays a critical role in the loan approval process.

What does my credit score mean?
An individual’s credit score provides a lender with an indication of the “probability of default” of the individual based on their credit history. What this means in simple English is that the score tells a lender how likely you are to pay back a loan (should the lender choose to sanction your loan) based on your past pattern of credit usage and loan repayment behaviour. The closer you are to 900, the more confidence the lender will have in your ability to repay the loan and hence, the better the chances of your application getting approved.

How is the credit score used?
A credit score is used by loan providers to screen loan applications. For example, Bank A may decide that it will decide to only lend to applicants with a credit score for 700 and above.  On the other hand Bank B may decide that it will only lend to applicants with a credit score of 600 and above.  Each lender decides what an adequate score is as per its credit policy. The credit bureau does not recommend what credit score a lender should use as a cut off.

However, it is important to note that the credit score is only one of the pieces of information used by a loan provider.  Your income details and overall debt exposure are also considered before a lender takes a decision on your loan application.

How do I find out what my credit score is?
You can find out what your credit score is by purchasing from the credit bureau.  The credit score is provided to you along with a CIR so that you have the basis upon which your credit score is calculated. If you feel that there is an inaccuracy on your CIR you should get that corrected because inaccuracies in your “Accounts” or “Enquiries” sections may affect your credit score.

The writer is senior vice-president - consumer relations, Cibil, and can be reached at creditwise@cibil.com