Even if you are a little bit responsible towards your personal finance, then it’s likely you have heard that you ought to have a high score. But who calculates your score, and who owns your credit data? The answer is “credit rating agencies”.
What are credit rating agencies?
Credit rating agencies are the firms that collect the data of individuals and companies so as to create their credit report as well as their score. Basically, they monitor the financial activities of the people through their loan repayments, spending habits, etc. and use the information to assess their creditworthiness.
The top rating agencies in India include CIBIL, CRISIL, ICRA, Experian, Equifax, etc. Some of these offers credit score of companies or individuals only, while others offer the score of both.
What types of data credit rating agencies collect?
A credit rating agency such as CIBIL is mainly interested in gathering the following information:
Length of Credit History
The length of a person’s credit history plays a big role in their credit score calculation. This is because if they have a long history, it means their financial behavior can be assessed with higher accuracy. On the other hand, if a person started using credit only a year ago or so, then it’s difficult to predict whether they are responsible towards finance management or not.
The repayment history is another main factor that affects the score of a person or a business. For instance, if you have taken a few home loans in the past but repaid them all on time, which means that with the majority of the EMIs paid on the due dates, then you can get a high score. However, if you have often missed your credit card bills or EMIs in the past, then the rating agency will look at it as a negative aspect and deduct points from your score accordingly.
Credit Card Utilization
Your credit card usage data is also something that the majority of credit rating agencies are interested in. This is because it alone can tell a great deal about your personality and your spending habits.
If you use more than 35% of your credit card limit almost every single month, then it shows that you are “hungry” for credit. The same happens when you apply for new cards frequently. These things work against your credit report and thus must be avoided.
Is my CIBIL score also a part of the credit data?
Not only your CIBIL score a part of the credit data stored with the credit rating agencies, it’s the most vital one. This is because it sums up your entire credit data.
Your CIBIL score is calculated on the basis of a variety of important factors/data that are shared above. So, if you apply for home loans, personal loans, etc. then the lenders may not even need to look at your cibil report. They can just look at your score to see whether you have high or low creditworthiness.
What’s a good CIBIL score?
A CIBIL score ranges between 300 and 900. Thus, 300 is the lowest score that you can theoretically get, while 900 is the highest. That said, the floor and ceiling are rarely found in a credit report. Most lenders instead categorize the CIBIL score in four categories:
- Poor- 350 to 550
- Fair- 550 to 650
- Good- 650 to 750
- Excellent- 750 to 900
If you want to enjoy a safe and secure life finance-wise, then it’s important that you take measures to keep your CIBIL above 550. However, ideally, you should strive for achieving a score of 650 or above.
The Bottom Line
So, now you know who owns your data. It may make you feel uncomfortable, but it really shouldn’t. This is because even though the credit rating agencies collect your data and provide your score, it’s you who controls your credit report. If you instil good financial habits in yourself, then you can achieve a good score. Similarly, if you are not careful enough, then you can also ruin your score yourself. Thus, be wise, and make yourself aware of the right credit-building measures.