How Credit Information Companies Rate New Borrowers

But credit scores for individuals are based on previous borrowing and repayment patterns. What about those with no credit history on which to base a credit report?
Banks and credit information companies are looking into various factors and parameters to evaluate first time borrowers. CIBIL has a rating system that ranges from 1 to 5 and Experian has a rating system that ranges from 1 to 6. The higher the score, the lower the risk.


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Customer profiles. Credit bureaus are using certain indicators to establish profiles and determine credit-worthiness. Your age, employment status, the company you work in, total work experience, years spent in the same company, geographical location, type of residence (rented or owned), salary details, etc. are being taken into consideration to establish a borrower profile. New applicants over the age of 25 are preferred as they would have jumped enough companies to find their niche, and employment details are analysed to establish stability and earning potential. Applicants living in rented places must pay rent, and hence have less money left over at the end of the month than those who live on owned property. Salary details are important for obvious reasons like determining monthly EMI repayment capacity and total eligible loan amount.
Paying bills. There are also plans of using data relating to your regularity of paying utility and phone bills to determine if you’re financially responsible – although the Telecom Regulatory Authority of India (TRAI) doesn’t currently allow telecom companies to share customer details. The RBI has dropped hints that telecom data would be among the first to come in and be considered. If credit information companies have access to your regular utility payments like electricity and telephone bills, insurance premium payments, etc. it will enable them to draw a more accurate conclusion about your financial responsibility and creditworthiness.
Spending patterns. E-commerce giants and online retailers alike can easily draw accurate conclusions about their customers’ creditworthiness by analysing spending patterns and regularity. Not all people are equally inclined towards consumerism, but knowing that a potential borrower allocates a portion of his/her income towards regular online purchases indicates to the bank that these funds can be reallocated towards EMI payments instead.
Fresh borrower behaviour. New borrowers usually go for consumer durable loans, two-wheeler loans or gold loans as their first credit products. Credit cards are usually only issued to customers with savings bank accounts in the issuing bank. If you do manage to convince a lender to give you a loan without adequate credit history, make sure you pay it off entirely and on time without missing a single payment. Your performance on your first loan goes a long way in building or destroying your credit score.

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