Credit Score

What is Credit Score?

A Credit Score is a numerical representation of one’s credit health. A Credit Bureau keeps track of an individual’s credit history and credit behaviour and prepares a credit report reflecting their credit score and rating. A credit score is universally accepted as a measure of credit worthiness of an individual or a business. Generally Credit Score ranges from 300 to 900. Higher is the credit score, better is your credit eligibility.

Steps to Check Credit Score for Free

• Visit the Official Website of a Credit Bureau
• Register for a Free Account
• Enter Your Personal Details
• Complete Identity Verification
• Access Your Credit Score

Credit Score Range & Meaning

CIBIL scores can range from 300 to 900, with 900 indicating highest creditworthiness. Your credit score can fall within a certain range:

• 300–579: Poor — Borrowers in this range are often considered risky.
• 580–669: Fair — These borrowers might get credit, but not at the best rates.
• 670–739: Good — A good score generally leads to favorable interest rates and loan terms.
• 740–799: Very Good — Borrowers can expect better-than-average rates and terms.
• 800–850: Excellent — This is the gold standard. Borrowers in this range get the best rates and terms.

Importance of Credit Score

A credit score, often viewed as a financial report card, impacts numerous areas of one's life. Lenders use it to gauge the risk associated with a new borrower. Good scores can lead to instant loan approvals, attractive credit card offers, and even lower insurance premiums. On the other hand, poor scores can lead to rejections, higher interest rates, and less favorable terms.

Factors Affecting Credit Score

• Payment History: Timely payments improve your score, while missed or delayed payments reduce it.
• Credit Utilization: Using more than 30% of your total credit limit may negatively impact your score.
• Credit Age: Longer credit history builds trust and raises scores.
• Credit Mix: A healthy combination of secured and unsecured loans improves your score.
• Recent Credit Inquiries: Multiple loan or card applications in a short period can lower your score.
• Outstanding Debts: High unpaid balances lead to a lower credit rating.

How to Improve Credit Score

• Pay all your EMIs and credit card bills on or before the due date.
• Maintain a credit utilization ratio below 30%.
• Do not close old credit cards, as they improve credit age.
• Avoid applying for multiple loans or cards at once.
• Check your credit report regularly to detect and dispute errors.
• Maintain a mix of secured (home, auto loans) and unsecured (credit cards, personal loans) credit.

Benefits of a Good Credit Score

• Quick loan and credit card approvals.
• Lower interest rates on loans and credit cards.
• Higher credit limits and pre-approved loan offers.
• Better terms for insurance and utility connections.
• Enhanced eligibility for premium cards and rewards.
• Greater negotiating power with lenders.

How Often Should You Check Your Credit Score?

Experts recommend checking your credit score at least once every three months. Regular checks help you track your financial health, identify potential fraud, and ensure accuracy in your credit report. Monitoring your score does not affect it, as soft inquiries are not recorded by bureaus.

Common Mistakes That Can Lower Your Credit Score

• Missing EMI or credit card payments frequently.
• Using your credit limit completely or exceeding it.
• Applying for multiple loans or cards within a short span.
• Closing old accounts that contribute to long credit history.
• Ignoring discrepancies or errors in your credit report.
• Co-signing loans for others without monitoring repayments.

Myths About Credit Score

• Myth: Checking your own credit score reduces it.
  Fact: Checking your own score is a soft inquiry and does not affect your rating.
• Myth: Closing credit cards improves your score.
  Fact: It may reduce your score by lowering total available credit and credit history length.
• Myth: Having no loans or cards gives you a perfect score.
  Fact: Without any credit history, bureaus cannot calculate a score.
• Myth: Paying minimum due on cards maintains a good score.
  Fact: Full payment each month is necessary to avoid high utilization ratios.

Why Regularly Monitoring Credit Score Matters

Regularly checking your credit score allows you to maintain good financial health, identify discrepancies, and take proactive measures to improve your creditworthiness. A healthy score ensures better loan eligibility and access to favourable financial opportunities.