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    Looking to raise a loan? What constitutes a good credit score?

    Synopsis

    There are chances your score may be less than 300 when you have no credit history. In this case you may want to build one.

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    CIBIL puts anyone with little credit history and people with very high risk of default in the range of 300 credit score.
    By Rishi Mehra

    If you are looking to raise a loan for your personal or business needs, one of the most essential components in getting your loan application approved or rejected is the credit score. So, what constitutes a good credit score?

    If you are running a small business, chances are your personal credit score would be the one taken to judge your loan application. In this case your personal credibility and the credibility of your business becomes synonymous. In either case, it is important to know what your credit score looks like.
    The credit score is a three digit numeric summary of your credit history, which is compiled from various financial institutions, lenders and banks. The value ranges from 300-900, where 300 is the lowest score and 900 is the best score.
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    Image source: CIBIL

    CIBIL, which is the most common credit bureau, puts anyone with little credit history and people with very high risk of default in the range of 300 credit score. However, there are chances your score may be less than 300 when you have no credit history. In this case you may want to build one.
    Anything between 400 to 650 is still considered bad with high risk of default and lenders would hesitate to give you a loan. This happens when you have made defaults on your previous loans and they still continue to have a material impact on your credit score. Even if you do get a loan, you would be charged a higher interest rate.

    When your credit score is between 650-699, you are considered as moderately risky. The chances of getting a loan are better, but the terms of lending would not be very favourable to you. Only about 5.2% of all the new loans sanctioned fall under this bad, reflecting the fact that it is still not easy getting a loan in this range.

    If you are within the 700-750 score, your credit record is satisfactory and you will probably get a loan at competitive rates, when compared to scores below. CIBIL says about 10% of all the new loans sanctioned fall within this band.

    Credit scores of 750-799 is considered good and you will generally face very less difficulty in raising a loan. However, do keep in mind that credit score is not the only deciding factor is disbursement of a loan, but one of the important ones. Finally, any credit score above 800 is considered excellent and Is generally reflective of someone with good control over his or her finances and a proven track record of clearing the dues. Lenders would rarely hesitate in lending to this class of borrower.

    There are other credit ratings agencies like Experian that has a similar score range of 300-900 points, with 300 being the lowest and 900 being the highest. Equifax on the other hand scores individuals on a scale of 1 to 999, with 1 being the lowest and 999 being the highest. While each credit agency has its own formula and algorithm to reach your credit score, you would get an idea about where you stand if you get the score from just one agency. Others would be similar and you can arrive at a ballpark range.

    It is important to keep in mind that CIBIL has another product called the CIBIL Rank, which is summarizes a business’s credit report CCR in the form of one number. The rank is similar to the CIBIL Score provided for individuals, but in this case is provided from a scale of 1 to 10, where 1 is the best rank that can be achieved. The rank is only provided to businesses that have credit exposure of Rs. 10 lakh to Rs. 10 crore.

    The writer is, CEO, Wishfin.com.


    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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