Reportedly at least three PSU banks viz. Bank of Baroda, Syndicate Bank and Union Bank of India, have adopted this transparent policy of linking the rate of interest on retail loans given to individuals to their credit score maintained by independent agencies like CIBIL. Meanwhile if you consider the scheme followed by Bank of Baroda for instance, if an applicant approaches for a home loan and his or her CIBIL score is above 760 (900 being the highest score awarded), then that applicant can enjoy a rate reduction of 1% from the rack rate interest and the lower slab of 675 to 724 will have to pay the standard rate.
Furthermore those having a credit score on CIBIL below 675 won’t be considered eligible for the loan in any case. Hence in real terms, this will be 8.1% pa for those with scores above 760 and 9.1% for the second category and Bank of Baroda has created a third category in the middle for those with CIBIL scores of 725 to 759, where these will be charged an interest of 8.35%pa.
Moreover apart from CIBIL, there are other agencies too, like Equifax, Experian and CRIF Highmark which generate scores to assess the creditworthiness of the borrowers. Perhaps these scores are based on data provided by banks and other participants on borrowers' payment track record on earlier loans and utility bills, among other things.
