​Don’t Know What’s a Credit Score? Know Here.

An individual’s credit score is the number used by financial institutions and other lenders to ascertain their credibility. CIBIL score range generally falls between 300 and 900 and depicts your potential to repay the borrowed credit, for instance, the loan. A CIBIL score of 750 and above is looked upon as strong. 

In India, there are the top 4 credit information bureaus to compute your credit score – Equifax, CIBIL, Experian and CRIF High Mark. 

What’s a strong credit score?

While distinct credit bureaus may use distinct scoring models, an acceptable CIBIL score for loan approval ranges between 750 and 900. 

Why having a strong credit score crucial?

Banks and other important lenders use a credit score to decide your credibility. By evaluating your credibility, they judge your potential to repay the loan on time. Such lenders use your credit score to determine whether they will approve your application for a credit card or loan and to avoid any situation of fraud or bad debt. 

As every lender has its own risk grading technique, it is crucial to have a good or high credit score. For instance, one lender might consider a credit score of over 700 as good, while others may prefer lending if your credit score is over 750. Distinct lenders might even place a higher emphasis on distinct aspects of your score like your payment history or credit utilization ratio. Thus, in general, a credit score of over 750 is considered good in most cases.

When you hold a higher credit score, this means that you have demonstrated strong past repayment behaviour. This means that a potential lender may be more confident when approving your request for credit. Also, you may be able to get other advantages like a lower rate of interest, better repayment terms and conditions and a faster loan approval process. 

Thus, holding a strong or high score can assist you in getting your application for credit approved faster, while a low or bad credit score may result in application rejection.

What impacts your credit score?

There are various parameters that are utilized by an algorithm to compute your credit score. Each of the parameters has a distinct weightage on the credit score. These factors involve – your repayment history, credit utilization ratio, credit duration, and a mix of credit and credit enquiries. 

How can you ameliorate your credit score?

Once you are aware of the parameters that impact your score, it may be simple to know what you can do to make sure that you hold a strong credit score. While it might take a lot of effort and time to ameliorate your score, developing the following responsible habits can assist you over the long run – 

∙       Regularly access your credit report and check CIBIL score. In this way, you can keep a close watch on your credit score and understand what must be done to ameliorate your credit score. 

∙       Pay your EMIs and bills on time. Having a strong and timely repayment history is a crucial parameter in ameliorating your credit score. 

∙       Complete your outstanding payments. If you hold any outstanding payments that have crossed their due date, pay them at the earliest, as the later you pay, the more negatively it impacts your score. To avoid this mistake in future, consider setting alarm reminders so that you do not forget. 

∙       Try not to utilize a lot of your credit card limit – Ensure to keep your CUR (credit utilization ratio) low to show any lender that you are not dependent on credit. Try keeping the CUR 30 per cent; for instance, if your credit card limit is Rs 10,000, try not using over Rs 3,000. If it is not sufficient for your requirements, consider asking your issuer to raise your credit card limit or choose a second credit card. 

∙       Limit your credit requests – Try limiting the number of times you place an application for new credit. These are called hard inquiries, and lenders report them directly to the bureau. Their impact reduces over time. 

∙       Check your report for any inaccurate info. Periodically view if there is any inaccurate info on your report as your credit score can suffer owing to this. If you view any error mistake, raise the dispute as early as possible so that it is corrected.  

What info will not impact your credit score?

While there are various parameters that impact your credit score, there are numerous factors that play a crucial role in computing your credit score. These involve – 

Your account balance – Your credit score as well as report uses details linked to your loan and your credit card info instead of the amount present in your account. 

Your investments – While getting various credit cards and loans can impact your score, the number of investment accounts does not impact your credit score in any way. 

Your income, employment history or occupation – Where you work and the amount you make has no impact on your score. This is because the score is computed based on the number of credit lines you hold and how well you can manage it.

Where you stay – Even though your address might be stated in your credit report, your state, city, and accommodation type, this does not have any impact on your score. 

Utility bill payment – Your utility bill payments like phone, rent, water, electricity, and internet bills generally do not have any impact on your score. However, there are few alternative credit scoring models that consider your utility payment without a traditional credit history. 

Your demographics and age – No matter what your age is, your religion, education level and other demographic parameters do not impact your score. 

Your marital status – Your marital status has no impact on your credit score, as your score is determined based on your financial behaviour. Moreover, having a joint account will not bring about any change in your credit score and credit history. 

Debit card usage – As your credit score is linked to your individual credit usage, debit card transactions do not have any impact on your score. It is because when you use the credit card, you essentially are borrowing money and paying the same back later using the debit card. In this way, payment through cheque or cash also has zero impact on your score.