Credit Score Rating Reports Bank Loans : Credit score – Introduction:
Credit scores are established to help
When a loan is sanctioned, the actions of the lenders are reveal to the credit bureaus and the information is compiled into the credit reports. Inspecting the credit report takes a lot of time and there are also chances of missing any information. For keep away from these kinds of activities, credit scores were introduced.
A credit score report is uploaded into the computer, then the computer analyze the entire report and prepares a credit score. The credit score report is a number which is helpful for the lenders in approving the loan to an individual. Rather than spending valuable time going through these credit reports for each loan applicant, viewing at the credit score gives the lenders and quick and broad idea of the applicant’s trustworthiness of credit.
Credit score report benefit the lenders to decide whether to approve the loan applications or not. Credit scores also support the creditors to decide which loans can be offered.
Credit score reports offer many advantages to the borrowers as well. When the borrower has a good history of credit rating report, it becomes simple for the borrower to get loan easily.
History of Credit ratings:
In 1909, the first agency which issued credit ratings for bonds was ‘Moody’s’. Later other agencies started issuing credit ratings a decade later. Until 1936, these ratings were not seriously considered in the market. Later a new order was passed that restricted the banks from investing in risky bonds with low credit ratings to avoid risk of failure which could lead to financial losses. This rule was quickly accepted by many companies and financial institutions and immediately trust on credit ratings became standard.
Credit score is calculated by CIBIL. CIBIL means “Credit Information Bureau India Ltd”. CIBIL is the credit information company certified by the “Reserve Bank of India (RBI)”. This company collects and maintains records of an individual’s payments related to loans and credit cards. These credit records were submitted to CIBIL by banks and other lenders on a monthly basis.
India’s first credit Information Company is “TransUnion CIBIL Limited”. This company collects and maintains monthly reports of credit information which contains credit card payment history and loan information.
Credit score usually consists of three-digit numeric summary of credit information history. Its value ranges from 300-900. Credit score is derived by using details which contain accounts and enquires section on your credit information report (CIR).
Generally, the minimum required CIBIL score for a personal loan is 750. The figure which is above 750 is said that the applicant is credit worth and the application can be handled without any difficulty. Usually, credit scores range from 300 to 900. If the credit score ranges between 300 to 900. 300 will on the lower end of range and 900 will be the higher end of range.
Good credit score for the loan approval:
Normally, as per creditors good credit score would range somewhere between 700 and 850. A fair and decent credit score will fall in between 620 and 679. A bad or poor credit score will be value which falls under 580 or below.
Different kinds of credit ratings:
- Bonds/debenture rating
- Equity rating
- Preference share rating
- Commercial paper rating
- Fixed deposits rating
- Borrowers rating
- Individuals rating
- Structured obligation
- Sovereign rating
Bonds/debenture rating –
Bonds/debenture rating is generally circulated by corporates or government.
Equity rating –
Equity rating is the rating of equity shares issued by a company.
Preference share rating –
Preference share rating is the rating of preference shares issued by a company.
Commercial paper rating –
Commercial papers are the financial instruments which are used for short term borrowing. These papers are generally issued by various banks, financial institutions, finance and manufacturing companies. Rating given to these instruments are called commercial paper rating.
Fixed deposit rating –
Fixed deposits are the borrowings for medium term which are unsecured. Ratings of these programmes are called as fixed deposit ratings.
Borrowers rating –
Ratings which are related to borrowers is mentioned as borrowers rating.
Individuals rating –
Ratings which are connected to individuals is known as individuals rating.
Structure obligation –
Structured obligation is also known as debt obligation which is different from bonds/commercial papers/debentures and fixed deposit programmes. Structured obligation is typically called asset backed security. Various credit rating agencies evaluate the risk associated with the transactions on cash flows arising from the asset and in unfavourable scenarios, it would be enough to meet committed payments to the investors.
Sovereign rating –
Sovereign rating is the rating of a country which is being reviewed whenever a loan is required to extend or when some major investment is anticipated in a country.