Credit score: A good credit history for a secured future
factors such as how recently and frequently a customer has defaulted on a loan payment also plays a role in a credit score.
The score is used as a gauge by lenders to assess an applicant’s risk profile while processing a loan or credit card application. It has also started to provide a risk index between one (high risk) and five (low risk) for individuals with less than six months of credit history.
Apart from the credit report, banks also use other criteria such as employment, income, age and residential address of a potential borrower before approving a loan application. Thakral says that earlier it was largely private sector and foreign banks that reviewed credit history before deciding on loan applications but now even public sector banks have begun to make such enquiries. In fact, the country’s largest lenders — State Bank of India — now also regularly seeks credit information from CIBIL.
How it works
Typically, credit information firms have a network of member banks and financial institutions, that send transaction details to it regularly — in some cases credit card companies send it on a cycle basis, while banks prefer to send the data on a monthly basis.
Credit information companies then use the data to create financial histories of consumers, which can be tapped into by member banks. Individuals too can access their credit reports by logging on to the website of these firms and ordering their report that comes at a nominal fee ranging
