Thursday, April 30, 2009


Till a couple of years back,credit rating agencies were an unknown entity in India.They were predominantly a western country phenomenon where the financial markets are much more developed.But,now things are changing in India as well,and changing pretty fast at that. In India we now have well established credit rating agencies which provide credit related data of individuals to the member banks and financial institutions. These credit rating agencies are now playing an increasingly important role in deciding whether your loan gets approved or rejected by the banks/FIs in India. Hence it makes sense,to know bit more about them.
What are these Credit Rating Agencies? These are agencies which collate information regarding the credit history of an individual having loan/credit card accounts with member banks and financial institutions. They then make available this information to other banks and FIs, in exchange of fee , on request.The other banks /FIS use this information to decide on your loan/credit card application with them. For example, if your credit history has been good in Bank A i.e. you have promptly repaid all your EMIs etc then chances of your loan or credit card application getting approved at Bank B or Bank C is higher. Similarly, an adverse repayment report will adversely affect your chances with all other banks.
Which are the different rating agencies in India?
1.Credit Information Bureau (India) Ltd or Cibil
2.Equifax Credit Information Services
3.Experian Credit Information Company of India
4.Highmark Credit Information Services
Which is the most popular Credit Rating Agency in India?
At present, Cibil is the largest agency, with database on around 135 million customers of 164 banks and non-banking finance companies.
How does CIBIL allocates credit scores?
Cibil provides a credit score of up to 900 based on the borrower’s liabilities and payment history. A delay in the payment of an instalment affects the credit score. Similarly, if a cheque is dishonoured, the credit record is impaired. Cibil provides the score and banks, based on their estimate of risk, decide whether to give a loan or not.
Significance of these credit scores?
CIBIL scores imply your credit worthiness and helps the prospective lender to make a credit call based on this. A higher credit score signifies better credit worthiness than a lower score. For example , a person with credit score of 850 is supposed to have a very good credit history ,while a person with credit history of less than 500 will mean that he is sub prime customer.
How much should be your credit score ?
Well, this depends from bank to bank. Some banks might be willing to lend to a person with credit score of 600 while other may not lend to anyone with credit score of less than 750. It is entirely the bank/FIs call.However, in Indian context a credit score in excess of 800 is supposed to be good and will be approved by all the major bankers/FIs.
Can I know my CIBIL Score ?
As of now , the CIBIL scores are not available to common people. Its only made available to the member banks/FIs. However, there is a proposal to make this information available to everyone via a toll free number or a website . This information when made available in India will be a paid information like in western countries.

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