What is the Difference Between Credit Score and CIBIL Score?

Major Difference Between Credit Score and CIBIL Score

Credit score and CIBIL score are commonly used terms when talking about loan products. However, what exactly do these terms mean? Are they one and the same? Or is there a difference between a credit score and a CIBIL score? Let's find out.

Credit Score vs CIBIL Score: Understanding the Difference

Here’s a tabular representation of the difference between credit score and CIBIL score to give you a clear understanding:

What is a Credit Score?

A credit score determines a borrower's creditworthiness; hence, it is extremely critical information for lenders and borrowers. After careful evaluation of multiple factors, such as the borrower's credit history, credit utilisation, and other important financial records, a three-digit credit rating, anywhere between 300 and 900, is obtained.

RBI has authorised four credit bureaus. These credit bureaus, regulated by the Reserve Bank of India, determine credit reports and credit scores based on an individual's financial health.

One of these agencies is the Credit Information Bureau (India) Limited, known as CIBIL for short. The credit rating provided by CIBIL is called a CIBIL score.

Why is Credit Score so Important?

Your credit score determines your creditworthiness, which explains your debt repayment ability to the lenders. A higher credit score means that you are a low-risk borrower. Needless to say, lenders prefer such customers and provide them with better loan offers. For example, you can borrow a higher loan amount with lower interest rates. The loan tenure may also be better. This is why your credit score is an important aspect of your financial records.

Apart from managing borrower-risk exposure, lenders also make faster and more informed decisions, track a borrower's credit performance, and avoid identity fraud in the loan industry.

How do you view Credit Score?

A free credit score check is available on various financial websites. Follow these simple steps to easily get a free and quick credit score check on L&T Finance's official website or the PLANET App:

1. STEP 1: Go to the L&T Finance website or PLANET App on your mobile
2. STEP 2: Navigate to the credit score page
3. STEP 3: Provide the required information and submit

Your free credit score check will be complete, and the results of your request will be instantly displayed to you.

Similarly, you can check your CIBIL score on the CIBIL website. All you need to do is go to the official website of CIBIL and click on 'Get Your Free CIBIL Score'. Input all the necessary details, and your free CIBIL score and report will be available for viewing.

Apart from the CIBIL score, you can view credit scores on the websites of other credit bureaus as well. Here are a few important things to know about the credit bureaus and their functioning:

• Lenders such as banks and NBFCs do not favour any specific credit bureau and hence, send your data to all four licensed credit bureaus of India, which includes CIBIL
• Lenders check your CIBIL score, along with the credit scores obtained from the other three credit bureaus
• Credit ratings computed by all four credit bureaus are considered valid
• Every credit bureau has its algorithm to determine your credit rating, and these algorithms may vary from one organisation to another
• So, a minor difference between the credit ratings calculated by these bureaus is not only acceptable but also expected
• Usually, this difference is somewhere around 50 to 60 points

An ideal credit score is above 700 points, whereas a poor credit score is below 550 points.

Now, what if your credit score is not up to the mark? The good news is that you can improve your credit score. All you need to do is practice good financial habits to create a healthy financial record and build a better credit score. Take a look at some important points on how to improve your credit score.

What is the CIBIL Score?

The CIBIL Score is a three-digit number, ranging from 300 to 900, that reflects an individual's creditworthiness. It is calculated by TransUnion CIBIL, one of the leading credit bureaus in India. The score is based on your credit history, repayment patterns, credit utilisation, and other financial behaviour, helping lenders assess your ability to repay loans or credit card dues.

Why is CIBIL Score Important?

Understanding the importance of CIBIL Score can help you maintain financial health and increase loan or credit approval chances. Here’s why:

• Loan and Credit Approval: A high CIBIL score assures lenders of your creditworthiness, improving your chances of loan or credit card approval.
• Better Interest Rates: Higher scores often lead to lower interest rates, saving you money in the long term.
• Increased Credit Limit: Lenders may offer higher credit limits for individuals with good CIBIL scores.
• Influences Financial Freedom: It helps you quickly secure personal loans, home loans, or credit cards without additional scrutiny.
• Avoids Rejection: A low score may lead to rejections, impacting your financial plans.
• Negotiation Power: Borrowers with excellent scores can negotiate better loan terms and conditions.
• Reflects Financial Responsibility: A good CIBIL score showcases your disciplined financial behavior, building trust with lenders.

Improving your credit score: some do's and don'ts

Although it is possible to improve your credit score, practicing financial discipline can be a task for many. That's why developing good financial habits early on is a better way to create a favourable financial history. Some things you can do are:

• Always pay all your bills in a timely manner; avoid unnecessary delays
• If you use credit cards, keep your credit utilisation to a minimum; always pay credit card bills within the due date. In case you miss it for a valid reason, remember to settle the account as soon as possible
• In the case of existing loans, avoid missing EMIs; borrow a loan only when required and avoid using loans for luxury expenses
• Avoid unnecessary credit inquiries as that affects your credit history
• Keep a regular tab on your credit history

Whether or not you are planning to borrow a loan, it is advisable to maintain a sound financial record, which will further help you with a good credit score. L&T Finance provides you with free credit score checks and other tools to ease your loan process.

Frequently Asked Questions

1. How is a credit score different from a CIBIL score?

The difference between credit score and CIBIL score lies in their scope and origin. A credit score is a general measure of creditworthiness provided by various credit bureaus, while a CIBIL score is specifically issued by TransUnion CIBIL in India.

2. Are CIBIL Scores and credit scores the same thing?

No, CIBIL scores are a type of credit score specific to TransUnion CIBIL, while credit scores are offered by multiple bureaus like Experian, Equifax, and CRIF High Mark. The credit score vs CIBIL score distinction mainly depends on the issuing agency.

3. How can you check your CIBIL Score and credit score?

You can check your CIBIL score on the official TransUnion CIBIL website, while credit scores from other bureaus like Experian or Equifax can be accessed via their portals or authorised financial service platforms. Always use trusted sources for accuracy.

4. Can my CIBIL score and credit score be different? If yes, why?

Yes, your CIBIL score and credit score can differ as each credit bureau uses its proprietary algorithms and scoring models. Variations in reporting timelines and lender submissions also contribute to the difference between CIBIL and credit score.

5. Which score is more important: CIBIL score or credit score?

Both scores are important, but in India, the CIBIL score is more widely recognised and used by lenders. Understanding the credit score and CIBIL score difference can help you assess which score is more relevant based on your financial goals.

6. Do all financial institutions use the CIBIL score for credit evaluation?

Not all, but most financial institutions in India rely on the CIBIL score for credit evaluation. Some may use scores from other bureaus, but the CIBIL score is credible in assessing loan and credit card eligibility.