Why Are There Different Types Of Credit Scores?
Have you ever tried checking your creditworthiness and found different types of credit scores?
Are you wondering why there is more than one type of credit score and which one is best for you?
Banking and non-banking financial service providers perform rigorous checks on each customer before extending them a line of credit or loan. Most often, assessing a loan applicant’s creditworthiness begins with checking their credit score.
Therefore, before applying for any loan, it is wise to check your credit score and ensure it is in a good range. But if you are confused with the different types of credit scores at this stage, this article is for you.
What Is a Credit Score?
A credit score is a numeric value generated by a credit bureau after assessing the credit history of a person or small business. Typically, a credit score ranges between 300-900. A lower value suggests poor creditworthiness, while a higher value reflects solid creditworthiness. Various factors are taken considered to calculate your credit score:
- The amount of outstanding debt
- Credit mix
- Credit duration
- Credit utilization (home, auto, business, personal, etc.)
- Payment history
- Recent inquiries for credit
These factors are assessed with the help of automated algorithms to generate your credit score, avoiding any human bias or misinformation.
How Many Types of Credit Scores are There?
Since a credit score can give reliable information to a lender about your credit history, it can’t be generated without proper authorization and licensing.In India, four credit bureaus are authorized to generate a credit score by processing personal customer information.
- TransUnion CIBIL: As one of the earliest credit bureaus in India, TransUnion’s credit score, also known as CIBIL score, is one of the most popular credit scores in the market. It ranges between 300 and 900 and is accepted by most lending institutions while processing loan applications.
- CRIF Highmark: This bureau was established in 2007 and also generates a credit score ranging between 300 and 900.
- Equifax: This credit bureau is operated in a joint venture with Equifax Inc. USA and generates a credit score ranging between 300 and 850.
- Experian: Established in 2010, this bureau also generates a credit score in the range of 300 to 850, and is accepted in various countries.
Due to the different bureaus generating different credit scores, there are four different types of credit scores in the market.
Maintaining a Good Credit Score
A credit bureau can securely share your credit score with a bank or financial institution if they request the same while processing your loan application. Alternatively, you can also check your credit score by logging on to the website of any of the aforementioned credit bureaus and providing the required information.
Since it plays a crucial role in getting your loan application approved and availing of a lower interest rate, it’s essential to maintain a healthy credit score. Irrespective of the type of credit score you are generating, repaying your credit card or loan installments in time can help you maintain a high score.
In conclusion, there are different types of credit scores because different credit bureaus use various parameters to determine the creditworthiness of an individual or business. While the credit score range of one bureau may differ from that of another, every credit score is critical for the approval of your loan application. Thus, maintaining a high credit score and performing a credit score check before applying for a loan can increase your chances of availing quality credit at a low interest rate