Credit Scores Have Fallen Due To Change In CIBIL's Method

A credit score is one of the factors that determine whether a lending institution will give you a loan or not. In India, TransUnion CIBIL (formerly known as CIBIL) is the most popular credit information companies in India and maintains credit files on millions of individuals and businesses in the country.

However, credit information companies have revised their methodology to calculate scores on borrowers and cardholders. According to a LiveMint report, due to the changes in the new scoring system, credit scores of many could have reduced since the beginning of 2020.

According to the report, in January, out of the total consumers, 60 percent had a score of 775 or more as per TransUnion Cibil's website and now only 37 percent have a score above 765.

"We launched a new scoring system recently. It is nuanced and works on credit data of 36 months. Earlier, we looked at 24 months of data when scoring customers," Rajesh Kumar, MD and CEO of TransUnion Cibil was quoted in the report. It is the third version of CIBIL's CreditVision score.

The report further said that customers don't need to worry about the drop in their scores or possible rejection by lenders as CIBIL has worked with its member banks and non-banking financial companies (NBFCs) to change their lending policies accordingly. Lenders have been lowering their credit score requirement to fit the new scoring mechanism.

Kumar told LiveMint that the new scoring mechanism was launched by TransUnion CIBIL due to multiple reasons that include accessibility to technology capable of crunching volumes of data and change in consumer behaviour.