Taking a loan can be a complicated process for most people. The illustration below indicates what to expect at every step during the loan evaluation process. It helps understand how the credit decisioning works in banks and the steps they take before deciding to accept or reject a loan/ credit card.

loan process

79% of the loans or credit card disbursed are to individuals with a Credit Score greater than 750.


  • Suit filed or written off cases reported in the Credit Information Report [CIR]. This is indicated in the ‘Account Status’ section of your CIR
  • Payment history trend – if there has been any default or amount overdue. This is indicated in the ‘Days Past Due’ [DPD] field of your CIR
  • Company profile where you work – the banks generally have an approved list to which they extend loan / credit card.
  • EMI to Income ratio : if your current total EMI exceeds your monthly salary by more than 50% then chances of getting loan are reduced. Let’s take the help of an example to understand this further.


CASE 1 *
  • Income : 1,00,000
  • Total EMI’s being paid : 20,000
  • EMI to Income Ratio : 20% [20,000 / 1,00,000]
  • Rule of thumb EMI to Income Ratio: 50% [lenders assume you will need half salary for living expenses].
  • Total Borrowing Capacity : 50% * 1,00,000 = 50,000
  • Total Incremental EMI that individual can afford : 50,000 – 20,000 = 30,000
  • Basis this EMI, total additional loan that may be sanctioned at an interest rate of 10% over 20 years = 31,00,000


CASE 2 *
  • Income : 1,00,000
  • Total EMI’s being paid : 50,000
  • EMI to Income Ratio : 50% [50,000 / 1,00,000]
  • Rule of thumb EMI to Income Ratio: 50%
  • Total Borrowing Capacity : 50% *
    1,00,000 = 50,000
  • Total Incremental EMI that individual can afford :
    50,000 – 50,000 = 0
  • Basis this EMI, total additional loan that may be sanctioned at an interest rate of 10% over 20 years = 0


Credit Scores

What is a credit report?

A credit report is a record of your credit history that includes information about Personal data, Summary of credit history, detailed account information and Inquires into applicant’s credit history which helps lender in determining a loan applicant’s creditworthiness.

What is a credit bureau score?

A credit bureau score represents the odds or probability that the consumer will become delinquent on at least one account within a twelve month period of time. It is built on thousands of data arising from the Consumer Credit Bureau.

What are the benefits of credit bureau score?

The credit bureau scores provide several benefits to Banks and financial Institutions to grant loans to the customer . They are a stable indicator of risk over time and they function as an industry standard for the Indian market. In addition, they offer an unbiased analysis across all credit products and credit institutions and are easy to interpret.

Major Factors affecting credit scores

There are 4 major factors that affect your score

  1. Payment history : Making late payments or defaulting your EMIs or dues (recently or consistently) shows you are having trouble to pay your existing credit obligations and will negatively affect your score.
  2. High utilization of Credit Limit While increased spending on your credit card will not necessarily affect your score in a negative manner, an increase in the current balance of your credit card indicates an increased repayment burden and may negatively affect your score.
  3. Higher percentage of credit cards or personal loans (also known as unsecured loan) Having a balanced mix between the secured loans (such as Auto, Home loan) and unsecured loan (such as Personal loan, Credit Card) is likely to have a more positive effect on your score.
  4. Many new accounts opened recently If you have recently been sanctioned multiple loans and credit cards, then lenders will view your application with caution because this behaviour indicates your debt burden has increased increase, which will negatively impact your score.

Improving and Maintaining Your Credit Score

If you have been rejected for a loan or credit card, there is a high probability that it happened because there is information in your credit card that marks you as a borrower with low credit worthiness. Thats the bad news. The good news is its not the end world and with a small amount of effort you have an opportunity to improve your credit worthiness. For starters, any information featured on your report only stays there for a limited period usually five years or less. So any information beyond that period is replaced by the new information that you add. So start following the tricks and tips mentioned below to start laying the foundation of a good credit score and a blemish-free credit report in the future:

  • Ensure your pay your credit card bills and loan EMI on time and in full every month
  • Do not apply for multiple loans and credit cards simultaneously
  • Periodically check your report for mistakes and get them corrected if necessary
  • Keep your debt to credit limit ratio lower than 50% across all credit cards and other loans
  • Ensure that you do not have multiple outstanding unsecured loans/credit cards

Credit Report

What is a Credit Report?

A credit report is a document, which details your financial history with respect to all forms of credit. The key types of credit or borrowing instruments that form a part of the credit report include credit cards and all sorts of loans personal loan, Loan against property, Business Loan, home loan, car loan, etc. to name a few. The important thing to note here is that such information is a historic representation, so in case you have never taken a loan or a credit card, your report, when generated will reflect the same.

Key Information contained in a credit report

Apart from the historic records pertaining to your borrowing instruments such as loans and credit cards, your credit report also includes the following key identity information:

  • Name
  • Date of birth
  • PAN Number
  • Additional Identity Information such as serial number of Driving License, Voters ID card, etc.
  • Your current and previous residential addresses
  • Your current and previous employers with address
  • Income tax information availed through previous IT filings
  • Dates on which your credit report was pulled by lenders to determine loan/credit card eligibility
  • Information related to overdraft facilities available with your banking accounts etc.
The Utility of Credit Reports

The primary purpose of these reports is to help lenders such as banks and NBFCs determine the credit worthiness of loan/credit card applicants. Your report contains data regarding how closely you have followed the payment schedule of your previous/current loans and credit cards. In case of missed payments or past due payments, this information is also present in the report and related penalties are applied when calculating your credit score. The credit score itself is a 3 digit number, which is derived statistically by taking multiple parameters into account and as a rule of thumb, the closer you are closer to 900, the more credit worthy you are believed to be by the prospective lender. Conversely, the closer your score is to the 300 mark, the less credit worthy you are determined to be and the less the probability of your loan/credit card applications being sanctioned by a prospective lender.

However, prospective lenders are not the only people who have access to these reports. You can also access a copy of your own report. Using those, you can figure out your eligibility for loans and credit cards that you may be interested in. It is in fact recommended that you get a copy of your report at least once a year to ensure that the information in the document is up to date and correct. Errors in your credit report can cost you dearly as if it may lead to rejection of credit card/loan applications as well as availability of lesser loan amounts or high interest rates charged to loans and credit cards issued to you.

Companies that Prepare Credit Reports in India

In India, these reports are prepared by companies known as credit reporting agencies or credit bureaus, who collect the borrower’s information from banks and NBFCs (non-banking financial companies) as well as various government agencies such as the Income Tax department. Three credit reporting agencies provide these reports in India Equifax, Experian and CIBIL TransUnion. Each of these companies have slightly different credit scoring models, hence the same individuals credit score can vary in reports prepared by different agencies.

CIBIL TransUnion Credit Report

CIBIL stands for Credit Information Bureau (India) Ltd. and it was set up as India’s first credit bureau. Currently, CIBIL has teamed up with TransUnion, a globally recognised credit rating and analytics company to provide CIBIL credit report to Indian individuals. Lenders who are registered members of CIBIL submit monthly reports to CIBIL regarding its borrowers and CIBIL TransUnion prepares its reports based on such information. CIBIL credit reports are not free and they are available in lieu of a fee, but it does have the facility of providing instant credit report online. Key Institutions that have holdings in CIBIL TransUnion include Bank of India, Indian Overseas Bank, Bank of India, ICICI Bank, India Alternatives Private Equity Fund, Aditya Birla Trustee Company Private Ltd., Union Bank of India, Bank of Baroda and Trans Union International Inc.

Experian Credit Report

Experian India is a completely owned subsidiary of Dublin, Ireland-based Experian LLC and operates as Experian Credit Information Company of India Private Limited. Experians credit reports include details of all your previous loans and credit cards, however, it uses its proprietary statistical algorithm to calculate your credit score hence the score provided by Experian would be different from that provided by CIBIL TransUnion and Equifax. Experian India does not currently provide free credit reports and you can get hold of yours for a specific fee. You can access your Experian credit report online as well as through mail, to check on your eligibility for loans and credit cards as well as to identify instances of identity theft. This credit bureau is still to provide instant credit reports. Some leading Indian financial institutions that have collaborated with Experian include Union Bank of India, Sundaram Finance, Punjab National Bank, Magma Finance, Federal Bank, Axis Bank and Indian Bank.

Equifax Credit Report

Equifax is an Alanta, US-based international organisation engaged in providing information solutions for the workforce, commercial and consumer segments. Equifax India operates as ECIS (Equifax Credit Information Services Private Limited), which is a collaboration of Equifax with leading financial institutions in India such as Union Bank of India, Sundaram Finance Limited, Religare Finvest Limited, Kotak Mahindra Prime Limited, Bank of India, Bank of Baroda and State Bank of India. The consumer credit bureau department of Equifax India has been operational since September, 2010

Crif Highmark

High Mark was founded in 2007 and received a Certificate of Registration from The Reserve Bank of India to operate as a Credit Information Bureau in India in 2010. CRIF High Mark is India’s only credit information bureau catering to all borrower segments – MSME and Commercial borrowers, Retail consumers, Microfinance borrowers. It is the pioneer in building and operating the country’s first and world’s largest Microfinance Bureau Database. CRIF High Mark provides Analytics, Data Management and related Software solutions promoting a more mature credit culture in the Indian economic system and sustaining the financial needs of businesses and consumers.

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