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All You Need to Know about Credit Rating: Process, Types and Importance

  • Highlights

  • Individual credit rating indicates your creditworthiness

  • Your credit score is usually between 300 and 900

  • Having a score of 750 and above is considered to be ideal

  • It helps you qualify for Bajaj Finserv’s Personal Loan

Among the many factors that lenders examine before approving a loan, your credit rating or credit score is one of the most important. What credit rating implies is your creditworthiness, or your ability to handle credit. It is assigned to you by a credit bureau and is especially important for unsecured offerings such as a personal loan, as you’re not required to pledge collateral. In such a scenario, your credit rating becomes the prime metric that the lender relies on to gauge the risk involved in offering you credit.

Check your cibil score for free
As an individual, your credit score is between 300 and 900, and the higher your score is, the most trustworthy you are in the eyes of a lender. In India, your CIBIL score is one that is generally taken into account by most lenders. However, there are other agencies too, with scoring protocols that vary marginally.

Now that you have a basic understanding of what is a credit rating in India, take a look at some of the details that affect you as a borrower.

Credit Rating Process

The credit rating process involves a detailed analysis of the credit risk associated with you. This is determined by evaluating factors such as your previous debt payments, credit exposure and your credit utilisation ratio. It is generally carried out by an independent credit bureau and can be accessed in the form of a report that contains your credit history, as well as your score. As this credit score can range anywhere between 300 and 900, knowing what your score indicates is important. Here is the breakdown of the score brackets.

  • NA/NH: This score is assigned to your profile when you have never borrowed credit and remains until you do.

  • 300-549: This score indicates that you have a poor credit history. This could mean that you have very little experience with handling credit or have defaulted on payments.

  • 550-649: This is an average credit score and suggests that you need to work upon certain aspects that are bringing down your score.

  • 650-749: This score is assigned to your profile when you have a healthy credit history. With this score, you have a fairly good chance of getting approval for credit. However, as there’s room for improvement, you may not enjoy other perks, such as being able to negotiate a lower interest rate.

  • 750-900: This is the highest or good cibil score and is assigned to your profile when your credit history is excellent. It indicates that you have ample experience with credit and have a sound repayment record. With a score in this range, you are likely to not only get approval for a loan, but also get a favourable loan amount and rate of interest too, as the risk associated with lending to you is negligible.

For instance, you can qualify you for loans such as the Bajaj Finserv Personal Loan with a CIBIL score of 750 or higher. It gives you access to a sanction of up to Rs.25 lakh without collateral, repayable over a flexible tenor spanning up to 60 months, with instant approval and value-added benefits like the Flexi Personal Loan.

Additional Read: Personal Loan with Low CIBIL

Types of Credit Rating

Broadly speaking, there are many types of credit ratings, as these are assigned to bank loans, corporate debt instruments, mutual funds and the insurance sector, amongst others.

When it comes to individual credit ratings, the following agencies typically assign a score.

  • TransUnion CIBIL Limited

  • Equifax Credit Information Services Private Limited

  • Experian Credit Information Company of India

  • CRIF High Mark

While your CIBIL credit rating or score is the one that is widely used by financial institutions across India, some lenders may request a score from other agencies. Don’t be alarmed by this, as there won’t be a significant difference in the scores given by different credit agencies despite minor differences in scoring protocols.

Objectives of Credit Rating

For a lender, the importance of credit rating is that it helps determine whether it's fiscally sound decision to lend money to you. It simplifies this decision by condensing the relevant information into a single score. From the point of view of a borrower, a high score gives access to a higher loan amount more easily, along with flexibility in negotiating loan terms. Moreover, having a high score means that you don’t have to settle and can choose from several beneficial options.

Additional Read: Improve your Credit Rating

For instance, when you have a score of 750 or more, you can qualify for Bajaj Finserv’s Personal Loan with ease and make use of the Flexi Loan facility. This allows you to borrow from the total loan amount that you’ve been given in parts, when you need funds, and pay interest only on the amount that you use. Moreover, you have the option of servicing the loan through EMIs comprising interest only for the duration of the tenor, and paying the principal at the end of the term.

Once you’re sure of your credit score being apt, you can also expedite loan application. You can check your pre-approved offer for a customised loan deal and get a personal loan in no time at all.

The content of this document is meant merely for information purposes. The personal loan features mentioned in this article are subject to updation, completion, revision, verification and the same may change materially based on policy revisions. For more details, please visit our Personal Loan terms and conditions page here.

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