Credit Score and You



Updated June 8, 2022

You’re reading an excerpt of Admitted by Soundarya Balasubramani. Written by an Ivy League graduate from India, this is the proven guide for students worldwide looking to pursue undergraduate or graduate study abroad in the U.S., Canada, or Europe. Purchase for instant access to the guide and other exclusive resources—including sample SOPs, sample resumes, scholarship lists, and a private community with other readers.

Your credit score is a measure of your creditworthiness.

It is calculated based on your credit history, which includes the following factors: current debt (if any), debt history, repayment history, length of credit history, etc. If someone were to lend you money, they would want to look at your credit score to answer the question: will this person pay me back my money on time? The higher your score, the more willing they would be to give you their money.

statsIn the U.S., the credit score ranges between 300 and 850. In India, it ranges between 300 and 900. While the range differs per country, having a higher score is better everywhere.

In 1956, engineer Bill Fair teamed up with mathematician Earl Isaac to create Fair, Isaac and Company (later renamed to FICO), with the goal of creating a standardized, impartial credit scoring system.* By 1958, they began pitching their first credit scoring system to 50 American lenders.* Fast-forward thirty years, they created a general-purpose credit score system we now call the FICO system. Since then, FICO has become the industry standard in the U.S., and is used by most lenders, if not all. As of 2020, the FICO score is evaluated by the three major credit bureaus: Experian, TransUnion, and Equifax. These three bureaus share the information on an as-needed basis when a lender, such as a bank, requests for it.

Switching back to India, there are four companies licensed by the Reserve Bank of India (RBI) to collect and compute credit information: CIBIL, Equifax, Experian, and CRIF Highmark. Each of them offers their own proprietary credit score, based on the 300 to 900 scale. Of these four, CIBIL’s score is the most popular one, and is evaluated by the TransUnion CIBIL Ltd,* which maintains credit files on 600 million individuals and 32 million businesses. The CIBIL score was first introduced in 2007 as India’s first generic risk scoring model for banks and financial institutions.

Whenever you make a transaction relevant to your credit score, such as making a payment using your credit card or paying off a loan, your bank sends the details to all four companies, as mandated by the RBI.

Of course, we understand the curiosity!

You can get your credit score for free from any of those four companies.

In exchange, you will need to provide your personal data, such as PAN and mobile number. Still, it’s worth checking your score to see where you stand. In India, a good credit score is typically between 650 and 750, and anything above that is great. In the U.S., a FICO score of 700 or above is considered good, while a score of 800 or above is considered great.

danger Credit scores do not follow you around the world. Even if you have an excellent credit score in India, your credit history will have a clean slate when you move to the U.S. If you’re thinking, can I then escape a bad credit history by moving abroad? The answer is no. This is because when you apply for a visa to a foreign country, your debt will be examined. If you have large debts (and therefore a bad score), it will raise suspicion and will most likely lead to refusal of the visa.*

Back to Educational Loans

So far, we learned about loans and credit scores. Let’s switch our focus to the main topic now: educational loans.

Educational loans can be of two types: secured and unsecured.

A secured loan, also called a loan with collateral, is where the borrower is required to provide collateral of some form, which is of greater value than the value of the principal amount. An unsecured loan, one without collateral, as the name suggests, is a loan where the borrower is not required to provide collateral of any form. Instead, the borrower will be judged based on the 5 C’s.*

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