Credit score is one of the most important aspects when it comes to financial well-being and borrowing ability in India. Whenever you are seeking a loan, credit card, or even renting a house, it is common practice among lenders to go through your score in order to determine whether you are a good or bad credit. With good credit score, it will be easier to obtain loans at reduced interest rates whereas with poor credit score one may be rejected or may be charged more. This is a plain and simple guide on what is in a credit score, the calculation of the credit score, why it is important, and how you can improve and take the correct measures to retain a high score in order to be financially stable — one of the Top Stories for anyone looking to build a strong financial foundation in India.
What Is a Credit Score?
Credit score is a 3 digit number, normally ranging between 300-900 and represents your credit record and the way you repay. Credit bureaus such as CIBIL, Experian, Equifax, and CRIF High Mark compute it through the use of your loans and credit cards. A score higher (750 or more) would be an indicator of responsible financial behaviors whereas a score lower would signal lenders of risk.
How Is Your Credit Score Calculated?
It is based on several factors that credit bureaus evaluate to determine your score and they include:
- Payment History (35%) – Timely bill and EMIs will increase your score.
- Credit Utilization (30%) – A credit usage of under 30 percent of your limit is optimum.
- History Length of credit (15%) – Older account with regular use is used to establish trust.
- Credit Mix (10%) – This is a good balance between secured (loans) and unsecured (credit card) credit.
- New credit Enquiries (10%) – There are already too many loan inquiries after which your score can be reduced.
Why Is a Good Credit Score Important?
A good credit score will enable you to obtain:
- Reduced interest rates on loans and credit cards.
- Quick loan application with reduced paper work.
- Increased future borrowing credit limits.
- Stronger bargaining ability with banks.
Lenders will have confidence in people who have a high score, because they are not very risky of defaulting.
How to Improve Your Credit Score
- Reimburse your EMIs and credit card bills in time.
- Do not use your credit card limit excessively.
- Look at your credit history on a regular basis.
- Applications Do not take several loans at a time.
- Keep ancient credit accounts that have good repayment history.
