Credit Scoring

Posted in Finance, Accounting and Economics Terms, Total Reads: 249
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Definition: Credit Scoring

A credit scoring is a method to know person’s credit worthiness. It is done by calculating a number or score using a analysis over past data about loan repayments and other behaviour. It is of immense help for lenders as it helps them to make decision on the particular customer/person. Higher the number better is the credit worthiness of an individual. In India, Credit scoring is done by CIBIL for every individual person (Credit Information Bureau Limited).


Similarly credit scoring is also done for companies too. Lenders use credit scoring to know how the terms of a loan and interest rates should be offered to borrowers are based on the probability of repayment and their score. In India, credit scoring is done by many companies like CRISIL, CARE and many others. So, the better is a person's credit score, the better are the rates offered to the individual by the lenders.


Advantage:

• Better lending by the institutions

• More chances of money recovery and decrease in defaulters


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