How do banks determine a good credit rating?

Usually, 750 is considered a “good” credit score. But that still doesn’t guarantee that lenders and credit card issuers won’t reject your application.

“Some lenders or card companies can be conservative. For specific products, they might require a higher score, ”said Nikunj Bhagat, Senior Vice President, Products and Innovation, CRIF India.

Bhagat explains with an example: “For premium cards with a high credit limit, a card company may decide to have a higher score of, say, 800 depending on the type of customer profile it wishes to take out. “

In addition, a lender or card issuer looks at many other parameters in deciding an application.

A “good” credit rating is therefore subjective. It depends on the lender, the product and the borrower’s financing need. As a bank customer looking for the best rates on a specific loan or credit card, here are some things you need to know about credit scores.

Each office’s score is different: There are four credit bureaus in India: TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. Each Credit Information Company (CIC) uses its proprietary algorithm to provide credit scores. Therefore, they differ from office to office. However, each CIC gives a score between 300 and 900.

TransUnion CIBIL is most popular among the four, being the first CIC in the country. Many lenders offer their best mortgage rates to borrowers with a CIBIL score of 750 and above. The Punjab National Bank, for example, has segmented its clients into four score categories: 750 and over, between 700 and 749, between 650 and 699, and under 650.

According to its website, the cheapest fares are those that exceed the score of 750. It charges higher fares to those with lower scores.

Most banks typically use the services of a single office to assess a loan or credit card application. But some, who use more than one desktop, correlate scores from different desktops based on their internal metrics.

Take the Central Bank of India, for example. According to its website, For Cent Home Loans, the bank does not lend to customers with CIBIL and CRIF High Mark credit scores below 675 and Experian scores below 700, a difference of 25 points. For its internal risk rating, there is a similar difference in the scores of the three bureaus.

The score requirement differs depending on the product: A lender’s credit score requirement may differ from product to product. The same lender may have different credit score requirements for auto loans, home loans, and personal loans.

“Usually, the credit score requirement for secured products such as home loans is lower than for unsecured products such as personal loans,” said Pankaj Bansal, commercial director of BankBazaar.com.

According to Bansal, the lender could even change the credit score requirement depending on the financing a borrower needs. Suppose someone needs a car loan to buy a car. The credit score requirement would be different depending on whether the borrower needs 40% of the cost of the car in the form of a loan or 85% of the price. In the latter case, the score requirement would be higher.

Lenders also tend to tighten their credit scores based on economic events. Many increased their score requirement last year during the lockdown due to the covid-19 pandemic.

Highest possible credit score: The perfect score of 900 is rare. According to most industry experts, they don’t know someone with a score of 900. “Around 850 is considered an almost perfect score. For practical purposes, it won’t be much of a difference whether someone has a score of 800 or 850, ”said Manu Sehgal, business development manager, emerging markets, Equifax.

Industry experts claim that most lenders would offer the same treatment to clients with a CIBIL score of 800 and above. The difference between someone with a score of 800 or 850 could be that the latter has lower credit usage, or could have a longer credit history, or that there was no loan application. recent.