What Is A Credit Score?
Credit scores simplified
25 September, 2024
Synopsis
A credit score is provided by credit information companies authorised by the Reserve Bank of India (RBI).
It can range from 300 to 900, and the higher your score, the better the chances of obtaining Credit Cards and loans.
Typically, a credit score of 750 or higher is considered to be good.
A credit score provides lenders an overview of your credit behaviour, such as how likely you are to repay a loan on time. This information is based on your credit report. Keep reading on to know more.
Definition of credit score
A credit score is an indicator of how consistent you are with repaying your debts. When you borrow money from lenders like banks, your repayment information is sent to credit information companies that compute a credit score. The higher your credit score, the better your chances of securing loans with favourable terms.
It is usually expressed as a number based on the person’s repayment history and credit files across different loan types and credit institutions.
Credit score is also known as a credit rating.
Credit scores in India
In India, there are four credit information companies licensed by the Reserve Bank of India.
These are Credit Information Bureau (India) Limited (CIBIL), Experian, Equifax and Highmark.
The CIBIL credit score is a three-digit number, which ranges from 300 to 900, with 900 being the best score.
Why you need a good credit score
A good credit score is considered to be 750 or higher.
Banks and lending institutions use credit scores to assess whether you are worthy of credit.
The better your credit score, the higher are the chances of getting your loan approved.
You are also likely to get additional benefits, such as low interest rates, better repayment terms and a quicker loan approval process.
Credit score calculation
Your credit score is calculated by an algorithm than takes into account several factors.
Each factor gets a different weightage in the calculation.
The factors under consideration include the following:
Your repayment history across debt categories (such as loans and credit cards)
Your total credit balance
Balance between secured and unsecured loans
Number of loans and credit cards you have
Credit utilization
How to check your credit score
You should ideally check your credit score before applying for a loan or credit card.
Place an online request to receive your credit score on the credit rating company’s website.
The credit rating agency may charge you for this service.