Credit scores are essential tools that measure your creditworthiness, helping lenders assess your ability to repay loans and manage credit. These scores are calculated using various financial factors such as payment history, credit utilisation, and the type of credit you hold. With different scoring models and credit bureaus offering their own versions, understanding the types of credit scores can help you get better credit opportunities at favourable terms.
Credit scoring models use unique algorithms to calculate a score by analysing specific financial behaviours. These models help lenders predict the likelihood of default and are a critical component of the credit approval process. Here are the most widely recognised credit-scoring models:
The FICO Score, developed by the Fair Isaac Corporation, is one of the oldest and most widely used credit-scoring models globally. It evaluates a borrower’s creditworthiness based on the following factors:
Payment History (35%): Tracks how consistently you’ve repaid debts in the past. Timely payments boost your score significantly.
Credit Utilisation (30%): Measures how much of your available credit you’re using. Keeping this ratio below 30% is ideal.
Length of Credit History (15%): Reflects how long your credit accounts have been active. Older accounts contribute positively.
Types of Credit Accounts (10%): Assesses the diversity in your credit mix, such as loans and credit cards. A varied credit portfolio is favourable.
Recent Credit Inquiries (10%): Consider the frequency of new credit applications. Too many applications in a short period may lower your score.
FICO scores range from 300 to 850, with higher scores indicating lower credit risk. They are widely used by banks, mortgage lenders, and credit card companies to evaluate loan eligibility.
The VantageScore was developed jointly by the three major credit bureaus—Equifax, Experian, and TransUnion—as an alternative to FICO. While it also ranges from 300 to 850, the weightage of each scoring factor differs:
Payment History (40%): Similar to FICO, timely payments are required to achieve a high credit score
Age and Type of Credit (21%): Considers the age of your credit accounts and the diversity of your credit types
Percentage of Credit Limit Used (20%): Focuses on your credit utilisation ratio
Total Balances and Debt (11%): Reviews all outstanding debts, including loans and credit card balances
Recent Credit Behaviour and Inquiries (5%): Evaluates new credit applications
Available Credit (3%): Takes into account unused credit, which can positively affect your score
VantageScore focuses more on credit utilisation and less on payment history compared to FICO. It is becoming increasingly popular due to its predictive accuracy and use of trending data.
India has four major credit bureaus, each offering its own credit scoring model tailored to the Indian financial ecosystem. Here’s a closer look:
The CIBIL score from TransUnion CIBIL is one of the most widely used credit scores in India, ranging from 300 to 900. It evaluates factors like payment history, credit utilisation, credit mix, and the length of your credit history. A score above 750 is considered excellent and improves your chances of securing loans with favourable terms.
Equifax provides credit scores that range from 300 to 850. Its model assesses repayment history, credit utilisation ratio, and credit mix. This score is widely used by lenders to determine credit risk and set loan terms accordingly.
Experian is another major credit bureau in India, offering scores ranging from 300 to 850. It focuses on payment history, outstanding balances, and recent credit inquiries. Experian scores are commonly accepted by lenders to evaluate borrower risk and assess loan eligibility.
CRIF High Mark scores range from 300 to 900 and are used for both individual and business credit assessments. The score is calculated using factors like payment patterns, credit history length, and outstanding debts.
Credit scores fall within specific ranges, each indicating a level of creditworthiness. Here’s how to interpret them:
Score Range |
CIBIL Score |
Experian Score |
Equifax Score |
CRIF High Mark Score |
Poor |
300 - 700 |
300 - 579 |
300 - 579 |
300 - 577 |
Fair |
701 - 800 |
580 - 669 |
580 - 669 |
578 - 644 |
Good |
801 - 900 |
670 - 739 |
670 - 739 |
645 - 693 |
Very Good |
- |
740 - 799 |
740 - 799 |
- |
Excellent |
- |
800 - 850 |
800 - 850 |
694 - 900 |
*Disclaimer: The ranges are indicative and may change depending on the bureau’s discretion.
What do these mean? Let’s understand in detail:
Poor: Indicates a high risk of default. Borrowers in this range may struggle to secure loans or face high-interest rates.
Fair: Signifies moderate risk. While loans may be approved, the terms are often less favourable.
Good: Reflects low credit risk. Borrowers in this range can qualify for loans with competitive interest rates.
Very Good: Demonstrates strong creditworthiness. Borrowers in this range are likely to secure loans easily and may be able negotiate for better terms.
Excellent: Represents excellent creditworthiness. This range usually qualifies borrowers for the best loan offers and the lowest possible interest rates.
Lenders use these ranges to determine your loan eligibility and set terms like interest rates and credit limits.
Credit scores are essential, influencing loan approvals and interest rates. Understanding the different types of credit scores and their ranges empowers you to make informed financial decisions. By managing your finances responsibly and regularly monitoring your score, you can enhance your creditworthiness and unlock better financial opportunities.
The CIBIL score by TransUnion CIBIL is one of the most widely used credit scores in India. It is accepted by most financial institutions and lenders as a reliable measure of creditworthiness.