A three-digit magic number called credit score is increasingly gaining significance in our lives, whether we want it or not. Anyone who has applied for a loan or a credit card or bought any product on EMI in the last 5-6 years would have certainly heard of credit score. Banks, NBFCs, Housing Finance Companies and even Fintechs use the credit score to assess a customer’s profile.
In India, there are four RBI-licensed credit bureau companies: CIBIL TransUnion, CRIF High Mark, Equifax and Experian. All credit bureaus receive and aggregate the same data at the same time from lenders all across the country. And each of these four credit bureaus generates a credit score in the standardized range of 300-900, with 900 being the best score possible.
But then why would my credit scores still differ between the bureaus and by as much as 100 points? Is something wrong with my profile or one of the credit bureaus? The answer is probably no.
The difference in credit scores from different credit bureaus is normal and is reasonably well understood by banks, NBFCs and Fintechs. Let us try to delve deeper and discover more.
When was your credit score checked?
Your credit profile with the credit bureaus can get updated any second. Lenders report data to credit bureaus on a daily, weekly or monthly basis. This data from various lenders keeps flowing into credit bureaus’ database as a continuous stream of information.
If you check your credit score from credit bureau A today, the information on your credit card issued in March may reflect only five months of data. But, if you repeat this check four months later with another credit bureau, nine months’ (richer) history available, for the credit card may have more influence on your credit score.
Every such update could alter your credit score in indescribable ways. So it’s better to compare your credit scores from different sources on same date.
Which credit bureau and which algorithm version of its score?
Difference in assessment approach
The credit scores are calculated based on five broad popularly known credit-worthiness factors – repayment track record, credit utilization, length of credit history, mix between secured and unsecured credit and the number of recent credit inquiries. However, each credit bureau uses its own unique proprietary logic, models, techniques and algorithms around these broad factors to score a consumer’s credit history and profile. A credit bureau may assign a credit score to a thin-file consumer with a short history of four months, whereas the other credit bureaus may not.
For instance, an amount of Rs 1,000 overdue for 30 days on a credit card with credit limit of Rs 1 lakh may cause a drop of 50 points in the score given by credit bureau A and perhaps a drop of 10 points in the case of bureau B. Bureau A may penalize any overdue irrespective of the value of the overdue, whereas Bureau B may consider the ratio of overdue (Rs 1,000) to the available limit (Rs 1 lakh) and therefore be less penalizing. It is clear that an overdue will have a negative effect on the credit scores irrespective of the scoring credit bureau.
Versions may matter!
A Credit Bureau also evolves its own scoring algorithms over a period of time, releasing newer versions. For instance, TU CIBIL now is on version three of its credit scoring algorithm. For the same consumer on the same date from the same credit bureau, one would expect same credit score whether seen by a bank or by you directly from the credit bureau’s website.
However, there is a possibility when it could differ - a bank may see a different credit score versus what you see through your own access. This could happen because the bank may still be subscribed to the older score version and preparing to migrate to the newer version, whereas you may already be accessing the latest version of the score. Remember the newer version of credit score does not necessarily mean higher score point for the consumer.
How was the DATA processed?
A lender shares the same file in same format with same content on same date with all four credit bureaus. However, the way this file is processed by a credit bureau differs by its own internal processes in terms of system capabilities and processing speed.
Credit Bureau A may refresh the data with this updated content on the day of receiving the file, whereas Credit Bureau B may do it after five days. The credit report pulled from Credit Bureau A will thereby reflect the latest data on the consumer’s loan accounts. Different data may mean different credit scores!
Due to processes internal to a credit bureau, there are instances where a particular data point may be rejected or missed by the credit bureau system for a due clarification or correction by the reporting lender. This may lead to a temporary difference in the underlying data on the credit report of that consumer from different credit bureaus, even though the data from that bank was refreshed by both bureaus on the same date.
Is there a need to worry?
If your credit score differs between the credit bureaus by 50-100 points, and the data in the credit report looks fairly accurate, then the answer is no.
The banks and NBFCs are trained to alter threshold (cut-off or reference) scores according to the credit bureau they use, to ensure a fair assessment of the loan application. Anecdotally, a consumer with 800 score on Experian may have a 750 on TransUnion CIBIL and a 720 on CRIF High Mark. Though a 700+ credit score is considered acceptable by most lenders, a bank may use 750 as the cut-off score for Experian, 720 for CIBIL and 680 for CRIF High Mark to fit its credit risk policies.
In case you spot inaccuracies in your credit report, or the credit score is too wayward (varying by 150+ points), you must write to the credit bureau and the lender to seek correction in your data, and thereby, in your credit report and your credit score.
You should check your credit report and credit score from each of the credit bureaus at least once in a year. Do not act like an ostrich ducking its head in the sand and avoid a credit bureau where the credit score might be low. Go to the credit bureau which gives you a score of 800+. You never know which credit score from credit bureau may be used by the bank, NBFC or fintech that you approach.
(The writer is a credit scoring consultant)