Why does the credit score differ between credit bureau?

What is a credit bureau? How does that work? Does that affect my day-to-day life? We are here to give you a proper insight on credit bureaus and their different styles of credit score ratings.

When you apply for a loan, the bank or the non-banking financial firm will try to pull up your credit report. The credit report will have all that is needed to understand you’re past financial history, your current debts. By having a thorough research on the same the bank then considers giving you a loan or any financial product like a credit card. But from where do the banks get the credit report?

There are four major credit bureaus in India; they are Equifax, CIBIL, Experian and Highmark. Majority of banks and Non-banking financial companies in India take assistance of CIBIL in terms of credit report of the customer.

CIBIL was established in the year 2000, Equifax, Experian and Highmark was granted a license in the year 2010 to enter Indian market and help with the credit rating system.

The scoring styles used by all these bureaus are different as they practice differently and do not want to collude with other bureaus.

 The Scoring System

CIBIL- the score ranges from 300 to 900, 300 being the lowest and 900 being the best. You can opt for a free cibil score from various Internet websites, but if you want a detailed report it will cost you INR 500.  It is not necessary to have a perfect 900 to get the loans sanctioned, every bank have their own protocols and you can avail a loan with a low CIBIL score as well but with a high interest rate. You can get the report within 7 working days once applied.

EQUIFAX- Equifax has a different approach when it comes to scores. Their score ranges from 1 to 999, on that 1 being the lowest and 999 being the highest, they more incline on the corporate side rather than individuals, the major services provided by them are Credit risk and fraud, industry diagnostics, etc. They take 10 days to generate the report. You can get it for INR 400.

EXPERIAN- Experian credit ranges just like CIBIL that is between 300 and 900, 900 being the highest and 300 the lowest. Experian on the other hand and more inclined to collection and money recovery, data analysis and customer acquisition. Usually they take 20 days, but with you a speedy process you can get it within 15 days. This will cost you INR 399 + Taxes.

HIGHMARK- the credit range in case of Highmark is a bit complicated, the score ranges from 300 to 850, but the scores are considered poor, if they are below 640 and are excellent when above 720. They specialize in verification, credit assist, data quality management etc.

The reserve bank of India has mandated all the financial institutions to access the credit scores to analyze if the individual is credit worthy.

You can increase your cibil score by fair practicing, pay your bills on time, do not hand on bad debts. With the perfect CIBIL score you can avail a lot of financial benefits, these credit bureaus also help you analyze how you could improve your credit scores. It only used to happen when credit report is used to determine loans, but now we are taking steps towards using it for every little transactions some sited like,

Screening for postpaid SIM card connections, Credit reports for online sellers, fixing insurance premiums, using the report to analyze prospective tenants, etc.

The credit score awareness is less among Indian people, hence they lack in credit discipline. Many people are unaware of the poor credit score and are denied loans. The bureaus play a vital role for banks for determining the credit worthiness of an individual.

Does What One Buy Affect Your Credit Score and Report

Your financial behaviour and the way you deal with your credit responsibilities affects your CIBIL report and score. The credit bureaus have all the information about the amount of debt you carry and the way you handle the payments. But do they also keep track of what you buy with your credit cards and from where you buy it? Is your shopping behaviour factored in during the CIBIL score calculation? It is important to know what does and what does not impact your credit report. So let’s have a look.

Even though the exact credit scoring process used by the bureau is not known to anyone, we know what factors affect the credit score calculation. The CIBIL report records detailed information of the amount of debt you carry on the credit card, but it doesn’t bother about what you have bought using credit line. The individual items bought are not taken into consideration, nor is the place where you have swiped the card. All credit reporting agency is concerned with is the utilization ratio (the amount of debt you owe as a percentage of the available credit limit), payment history (whether you have made on-time minimum payments on the account), length of credit history and the type of accounts.

Large purchases

Though what one buys does not influence the score, the amount of purchase surely matters. So if you are contemplating big-ticket purchases you need to know that your CIBIL report and score are influenced by the credit utilization rate. It is calculated by dividing the balance due on your credit card by the credit limit. If you use credit card to make a big purchase that utilizes most of your credit line, it will bring a sharp increase in the utilization ratio and result in a bad credit score. If you pay down the balance, the negative effect on the score will diminish. But if you make it a habit to max out your card you will have a low CIBIL score.  As a practice one should aim to stay below 30% utilization to maintain a good CIBIL sore. Whatever you buy within that limit does not affect your score. Large purchases using credit card that push the utilization over that threshold can cause your score to drop significantly.

Remember the timing of the payment also affects the CIBIL report. If you make a big purchase using a credit card but pay it off completely before the information is reported to the bureau(which is generally when the account statement of the card is printed) credit utilization will not get impacted.

A piece of advice: Make sure that the big purchase you are making with the credit card suits your budget. If you are not able to pay it off at the end of the month interest will start accruing and your debt will rise with time. Missing a payment will certainly affect your credit report negatively.

Buying a house or car by taking a loan

Buying a house, car or any other property in itself does not have any effect on credit ratings. However if you take a loan for the same then this purchase will affect your credit score for many years. Firstly when you shop for the best interest rates by applying to different lenders your credit score will get hit. The lenders will pull credit report and score to evaluate your loan application.  Each hard inquiry will cause a small drop in the score. But if you rate shop within a short period of time all inquiries will be counted as one. Each month, CIBIL report will reflect the amount of loan that is still due along with the payment patterns. Payment history is the biggest factor that contributes to credit score. By making on time payments you can ensure a high credit score. If you had previously used only credit cards then taking a home loan will improve your credit mix as well. By demonstrating responsible behaviour in handling both types of credit you can increase your credit score.

You now know that the credit bureaus do not keep track of what items you buy using credit card. As long as the credit utilization stays below 30% of the available credit limit, you have nothing much to worry. It is only when large purchases significantly raise your utilization rate does the credit score take a hit. You also now know how buying a house or car by taking a loan affects your credit score. So make timely payments and show responsible credit habits to stay on top of the credit score ladder.