The Credit Score is a number that indicates an individual’s credit worthiness. It impacts the individual’s capability to borrow and take new credit from lenders. Usually, banks or lenders use this credit score to evaluate the probability of whether an individual repay his debts or not. When you get credit and pay it back on time your credit rating improves over time and allows you the opportunity to borrow more from grantors. A person’s credit score ranges from 300 to 850 and the higher the score, the more financially trustworthy a person is considered to be.
Higher your Credit Score, higher are the chances of loan approval such as personal loan, business loan, home loan, loan against property, credit cards in India.
In India, three credit rating bureaus or agencies compute your score.
1. CIBIL (Credit Information Bureau India Limited)
2. Equifax and
Each of these rating agencies has various ranges for their credit scores. However, CIBIL is the most popular one, whose score ranges from 300–900, 900 being the best score given. However there are few exceptions to this, like individuals with
no credit history will have a score of -1, and if the credit history is less than six months, the score will be 0.
What your Credit score\ CIBIL score says?
Here is the detailed explanation of what your credit score says.
Great – 800-900:
This is a great score. It reflects an ideal track record of repayments of all previous borrowings that means people with this score have a long history of no late payments, as well as low balances on credit cards. Consumers with excellent credit scores may receive lower interest rates on0 mortgages, loans, and credit lines.
Good – 600-799:
If you are planning to apply for a fresh loan or a new credit card, this score offer a good chance that your application will be granted. A score in this range shows that you have handled your previous borrowings judiciously and are a safe borrower.
Bad – 300-599:
This is considered as a bad (low) CIBIL score and your chances being approved for the new loans or credit card are very less in this case. Primary reason for getting this score can include the default on loan payments or missing credit card payments.
What affects your Credit Score?
- Irregularity in Credit card and loan repayments.
- Cheque bounce
- Too many unsecured loans such as credit cards and personal loans.
- Default as a guarantor
- Higher the rate of application for credit cards or unsecured loans.
- If you are defaulter for your friend’s loan for whom you are acted as guarantor.
- Using your credit cards to the full limit.
How to improve your score?
- Never utilize more than50-60 percent of your credit cards limit.
- Never default your Credit card bills or loan EMI. Pay them without fail and within a specified period.
- Don’t try to overburden yourself with the too many loans. If your credit score is good, then banks are ready to sanction more loan than what you asked for. In such cases limit yourself for needed amount.
- Avoid having many unsecured loans and credit cards on a single name.
- Do not forget to collect “No Due Certificate” from your banker after closing the cards accounts or loan.
- Have 6-9 months of a gap while applying for fresh loans.
- Never try to run away from your loans. Settle them as soon as possible in a friendly way with your banker.
How to check credit score?
Since January 2017, the Reserve Bank of India has mandated that all the four licensed credit information companies enable you to check credit score online and provide one free credit score and credit report every year.
Here is how to get a free CIBIL report once a year.
Step 1: Go to the CIBIL website
Step 2: Fill out the provided form that requires your necessary information such as name, contact number, email address and click continue to next step
Step 3: Fill out the additional details about you including your Pan number. Make sure to enter your Pan details correctly to proceed to the next step.
Step 4: Answer all the questions correctly about your loans and credit cards, based on which your CIBIL score will be calculated, and your completed credit report generated. These are the four main steps to be performed to check CIBIL
score. However, the ones below are a continuation of the above listed main steps.
Step 5: You will be suggested various paid subscriptions ( if you need more than one report in a year). If you require only a one-time, free credit score and report, then proceed to select No Thanks at the bottom of the page. This is the stage where your account is created, and a confirmed message is displayed on the following page.
Step 6: Using your login and password that was created in Step 2, you can log in to your account. To proceed further, you need to authenticate yourself. You will receive an email on your registered account. Click on the link and enter the one – time password provided in the email. You will be prompted to change your password and login again.
Step 7: Once you log in, all your personal details will be auto-populated by default (please provide the accurate information if the fields are not auto-populated). Please enter your contact number and click submit.
Step 8: Once you submit that form your dashboard will be revealed with your CIBIL score. Additionally, you can get your credit report on the dashboard. However, it’s not advised to only check credit score once. One needs to monitor the ups and downs in your report as the banks, financial institutions and various credit agencies renew the report on a month on month basis.
Credit Score Factors
- Payment history: Credit payment history determines 35% of a CIBIL Score. The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in a CIBIL Score.
- Credit Utilization: Your credit utilization is the ratio of the amount of your credit card balances compared to the credit limits you have available. For example, if you have Rs 500 credit balance while your limit is Rs 1000, then your credit
utilization is 50%.
- Credit Age: Your credit age plays a role in your final credit score. It consists of factors such as age of oldest credit account, newest credit account, average of all accounts, types of accounts (mortgage, auto loans, etc), and last time each account was used.
- Account Mix: Accounts mix (or credit mix) involves different types of accounts that you have, such as revolving accounts, installment accounts, or open accounts. Having a mix of accounts does have an impact on your overall credit score.
- Credit Inquries: When applying for credit, lenders will check your credit score (inquiry), which will impact your credit score depending on your account. A soft inquiry will not affect your score but a hard inquiry on the other hand will.