There are several factors which can influence your credit score, which is a numerical representation of your creditworthiness. Credit scores in India typically range from 300 to 900, with higher scores indicating better creditworthiness. It’s important to note that credit scoring models may vary slightly among credit bureaus, such as CIBIL, Experian or Equifax. Regularly checking your credit report, correcting inaccuracies, and managing your credit responsibly are key to maintaining a healthy credit score.
Credit score
A credit score is a numerical representation of an individual’s creditworthiness, indicating the likelihood that they will repay borrowed money responsibly. This score is based on an analysis of the individual’s credit history, which includes their credit accounts, payment history, outstanding balances, types of credit used, and other relevant financial behaviour.
The credit score is generated by credit bureaus or credit reporting agencies, which collect and maintain credit information on individuals.
Importance of credit score
Lenders use your credit score to assess your risk when you apply for a loan or credit card. A higher credit score means that you are considered to be a lower risk borrower, and you are more likely to be approved for a loan with a lower interest rate.
Here are key factors that can affect your credit score:
Payment History: This is the most significant factor in determining your credit score. Lenders assess whether you have paid your past credit accounts on time. Late payments, defaults, and bankruptcies can significantly impact your credit score negatively.
Credit Utilisation: This is the ratio of your credit card balances to your credit limits. Higher credit utilisation can negatively affect your credit score. It’s advisable to keep your credit card balances below 30% of your credit limit.
Length of Credit History: The length of time your credit accounts have been active is considered. A longer credit history generally has a positive impact on your credit score.
Credit Mix: A mix of different types of credit, such as credit cards, loans, and retail accounts, can positively impact your credit score. However, it’s essential to manage these accounts responsibly.
New Credit: Opening several new credit accounts in a short period may be viewed as risky behaviour and can have a negative impact on your credit score. This includes both inquiries for new credit and the actual opening of new credit accounts.
Credit Inquiries: Every time you apply for credit, a hard inquiry is made on your credit report. While a single inquiry may have a minimal impact, numerous inquiries in a short period can be viewed negatively.
Settlements and Write-offs: Settling an account for less than the full amount or having an account written off by a lender can harm your credit score.
Frequency of Credit Usage: Regular and responsible use of credit can contribute positively to your credit score. This includes making regular payments on credit accounts.
You can check your credit score for free once a year from each credit bureau. You can also get a free credit report, which shows all of your credit accounts and payment history. To check your credit score and report, you can visit the website of any of the four major credit bureaus.
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