How is Credit Score calculated in india
In India, credit scores are calculated by credit bureaus using a specific algorithm that assesses an individual's creditworthiness based on their credit history and financial behavior. While there are several credit bureaus in India, such as CIBIL, Experian, Equifax, and CRIF High Mark, the calculation of credit scores generally follows a similar framework. Here's how credit scores are typically calculated in India:
Credit Report Data Collection: Credit bureaus collect and maintain credit-related information from various financial institutions, including banks, credit card companies, and NBFCs (Non-Banking Financial Companies). This data includes details about an individual's credit accounts, such as loans, credit cards, and their repayment history.
Payment History (Weightage: Approximately 30-35%): Payment history is a crucial component of credit score calculation, accounting for the largest percentage. It evaluates how consistently an individual makes payments on their credit accounts. Timely payments have a positive impact on the credit score, while late payments, defaults, and missed payments can lower it.
Credit Utilization (Weightage: Approximately 25-30%): Credit utilization measures the ratio of credit used to the total credit limit available. High credit card balances relative to the credit limit can negatively impact the credit score. Keeping credit utilization low is advisable.
Length of Credit History (Weightage: Approximately 10-15%): The length of a person's credit history is considered. A longer credit history generally has a positive influence on the credit score, as it provides more data for assessing creditworthiness.
Types of Credit (Weightage: Approximately 10-15%): Credit bureaus evaluate the types of credit accounts an individual has, such as credit cards, personal loans, home loans, and more. A mix of credit types can have a positive impact on the credit score.
Recent Credit Inquiries (Weightage: Approximately 10-15%): Each time an individual applies for new credit, a credit inquiry is recorded. Multiple inquiries within a short period can negatively affect the credit score, as it may indicate financial stress or excessive borrowing.
Credit Account Age (Weightage: Minimal): The age of individual credit accounts is also taken into account, with older accounts often viewed more favorably.
Different credit bureaus may assign slightly different weightages to these factors, and they may use proprietary algorithms to calculate credit scores. As a result, the exact credit score may vary between bureaus. However, the key components mentioned above generally play a significant role in credit score calculation.
Maintaining a healthy credit score in India requires responsible financial behavior, such as making on-time payments, managing credit card balances, and avoiding excessive borrowing. Regularly monitoring your credit report for accuracy and addressing any discrepancies can also help you maintain a good credit score.
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