A credit score indicates a person’s creditworthiness, or ability to repay debt. It is usually expressed as a number based on the person’s repayment history and credit files across different loan types and credit institutions.
In India, four credit information companies are licensed by the Reserve Bank of India. These are
Credit Information Bureau (India) Limited (CIBIL),
Experian,
Equifax, and
Highmark
The most popular credit score in India is the CIBIL rating. The CIBIL credit score is a three-digit number, which ranges from 300 to 900, with 900 being the best score.
RANGE | STATUS |
|---|---|
300-579 | Poor |
580-669 | Fair |
670-739 | Good |
740-799 | Very Good |
800-900 | Exceptional |
How Is the Credit Score Calculated?
Each credit reporting agency has its own method for determining a consumer's credit score. The following are some of the broad criteria used to determine your creditworthiness:
Payment history: Your payment history accounts for 35% of your credit score. Your payment history reveals whether or not you have a history of paying your bills on time, how often you have missed payments, and how many days you have taken to pay your bills after the due date. As a result, a high percentage of timely payments will improve your score. Do your best to avoid late payments, which can have a serious effect on your credit rating.
Debt from loans and credit cards: These account for approximately 30% of your credit score. A lower credit score is the result of carrying a high load or using a credit card to its maximum limit. The rating would go up if you kept your balance low and paid it off on time.
Duration of credit history: The length of your credit history accounts for 15% of your credit score. A higher credit score might be expected, as expected if you have a lengthy track record of paying your bills on time. However, you shouldn't avoid applying for credit cards and loans altogether so that you have a credit history for lenders to look at.
Number of credit products: 10% component of your credit score is determined by the number of loans (products) you have. Your credit score will improve if you have a wide range of credit accounts, such as instalment loans, mortgages, and credit cards.
Recent credit activity: This will determine the final 10%. Your "credit activity" includes opening new accounts, applying for credit, making payments, applying for loans, and using the credit you already have.
Factors Considered for Calculating a Credit Score?
The Credit Information Department figures out your credit score by taking into account a number of things, such as:
Credit score history depicts the loan applicant's ability to pay debts, whether he or she is responsible for paying the debts or not. It has details of the number of accounts that you hold, credit usage details, and information regarding delayed or failed payments.
Credit score inquiries include information like the type of loan you have inquired about, the amount of loan you have applied for, and whether you are an individual applicant or a joint applicant.
A repayment record has information about how often you paid on time and how often you didn't pay.
How to Check Your CIBIL Score?
Nowadays, it's pretty easy to check your CIBIL score online.
Visit https: cibil.com
Click on ‘get your credit score’ or ‘check my CIBIL score.’
Pick the desired subscription plan.
Please fill in the details for identity proof.
Click on ‘Proceed to payment’ and process the payment.
Get the CIBIL score and report in your email.
Why Is It Important to Maintain a Good Credit Score?
Increases your loan eligibility: You are more likely to be approved for a loan quickly if you have a strong credit score. A high credit score indicates that you make timely payments of your debts, which makes a favourable impression on the banks or other lending organizations where you have sought a loan.
Faster loan approvals: Pre-approved loans are available to borrowers with a strong credit score and a long credit history. Additionally, the loan you requested is granted promptly and the processing period is nil.
Reduced interest rate: If you have a high credit score, you can benefit from a lower interest rate on the loan amount you have requested.
Credit cards with enticing perks: If your credit score is strong, you may be offered credit cards with enticing perks and rewards.
Higher credit card limits: If you have a solid credit score, you can qualify for a larger loan amount in addition to the finest credit cards with appealing bonuses and cheaper interest rates. A high credit score indicates that you can manage credit responsibly, so banks and other financial organizations may think about giving you a credit card with a bigger limit.
How to Maintain a Good Credit Score?
Given that you are aware of the importance of keeping a high credit score and the variables that are taken into account while calculating the score, the following simple steps can help you do so:
Pay off your loan EMIs on schedule
Pay your invoices promptly
Avoid using up all of your credit limits
Pay off any lingering debts or bills
Avoid submitting multiple credit card or loan applications
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