What is a Credit Score and Why Does it Matter?

Your credit score is the number one figure in your financial life—only too many haven't a clue what it is, how to get it, or why you should." No matter whether you're borrowing money, a credit card, or leasing an apartment, your credit score decides the most critical consideration about whether or not lenders and other organizations consider you financially secure.

In this blog here, we are going to inform you about what a credit score is, how your life is impacted by it, how you can discover what it is, and how you can build and improve it with the passing of time.

What Is a Credit Score?

A credit score is a three-digit figure based on your creditworthiness—your ability to repay borrowed money in time. Your Indian credit score ranges from 300 to 900, and is determined by the credit bureaus like CIBIL (TransUnion), Experian, Equifax, and CRIF High Mark.

Your payment history, your account loan, your use of credit cards, your unpaid dues, and your credit report are assessed by these bureaus. They consider all of this to come up with your score.

What Is a Good Credit Score?

One of the most popular questions asked is: what is a good credit score?

• 750 or above A good credit score.
• 700-749 Considered good or average.
• Below 700 Harder to get approvals or may result in higher interest rates.

Lenders depend upon this score to determine the risk of lending money to you. Having a good credit score assures more loan disbursals, better interest rates, and increased credit card limits.

How to Check Credit Score ?

With a search volume of nearly 10,000 per month, naturally, a whole lot of people must learn how to check credit score in India. On the bright side, it is free and simple.
Here are the key ways to do so:

1. Credit Bureaus

All of the three major credit bureaus provide a free credit report annually.
Go to the websites of:

• CIBIL (cibil.com)
• Experian (experian.in)
• Equifax (equifax.co.in)
• CRIF High Mark (crifhighmark.com)

Register for a free account, provide a few identity details, and you receive your report and score.

2. By Fintech Apps

Even some finance service websites and apps provide free checks of your credit score, like:

• Paytm
• BankBazaar
• Paisabazaar
• CreditMantri

These websites allow you to check your score periodically without damaging it.

3. Will Checking My Credit Score Decrease It?

No. If you pull it yourself, that is a soft pull, and this will not hurt your credit. Only hard pulls (by lenders when you are applying for credit/a loan) will decrease your score.

It's a habit to check your score from time to time every few months in order to stay on top of your credit health and see if there are any errors.
Importance of Credit Score

While all of us remember their credit score only when in need of a loan, the significance of credit score is beyond that.

• Loan & Credit Card Approvals: A good credit score increases the probability of approval on time.
• Interest Rates: Financial institutions and banks are ready to lend money at lower interest rates to those who possess good credit scores.
• Increased Credit Limit: Improved pre-approved loan terms or increased credit limits.
• Simplicity of Leasing Property: Landlords would conduct credit check prior to leasing apartments.
• Employment Verification: Certain companies in some industries will occasionally verify credit scores as part of the background verification process.

In other words, your credit score impacts financial and non-monetary aspects in your life.

Factors affecting credit score

If you want a good one or simply want to keep the same, you must understand the factors affecting credit score. Most of the credit bureaus consider the below:

1. Payment History

Your timely payment history of EMIs and credit card dues. Any late payments or defaults would devastate your score.

2. Credit Utilization Ratio

This is a percentage of how much you're spending compared to your credit limit. It must always be below 30%. High utilization indicates financial distress.

3. Credit History Length

The longer your accounts have been open, the better. The more data, the more there is to know about your credit history.

4. Credit Mix

Having more than one credit source—a mortgage, credit card, and personal loan—demonstrates that you can handle various forms of debt responsibly.

5. Number of Inquiries

Taking out a credit card or a loan causes a lender to pull your credit report, or hard inquiry. Too many at once can lower your score.

Identifying these factors allows you to make smart money choices that will positively impact your credit score.

How to Build a Credit Score?

If you're beginning from scratch, the below are excellent steps in building a credit score from scratch:

1. Start with a Secured Credit Card

A secured credit card is supported by a pledged deposit. It's one of the most secure and simplest forms of starting your credit history.

2. Be an Authorized User

If there is a good credit payment history of a relative, then it can help in building your score as a secondary user.

3. Take a Small Personal Loan

A small consumer durable loan or a short term EMI product can also increase your credit, if repaid in time.

4. Pay Utility Bills through Credit Cards

Pay your regular bills through credit card and settle the entire amount in time. Financial regularity and discipline are the twin keys of a good credit report.

How to Improve Your Credit Score?

You already have a credit score but want to boost it? This is how to do it in the long term:

1. Pay in Time

Take reminders or set the payments on auto mode to avoid late charges. One default in EMI brings down your score.

2. Keep Credit Card Balances Low

Try to keep the usage of credit card less than 30% of the limit.

3. Space Out New Credit Applications

Taking on too much credit at once warns lenders. Space them out over time.

4. Challenge Mistakes on Your Credit Report

Old or old information will periodically lower your score. Review your report and challenge as needed.

5. Avoid Closing Old Accounts

Avoid closing off old charge cards, especially those with good payment history. They serve to contribute to your age of credit.

These steps might take several months to work, but are entirely worth it in the long run in an effort to create long-term financial health.

Conclusion

Your credit score informs you that your debt is okay. Either you are applying for a new credit card, buying a mortgage on your home, or even simply desiring to consolidate your finances, a good credit score is needed.

And now that you understand what a credit score is, how to calculate what it is, and how to establish and maintain it, you're in charge of your financial future.

Your credit score isn't permanent—it's in your hands. Take modest, cautious steps repeated again and again, and the score will be in its favor.

For those looking to go a step further in planning their finances, platforms like Indiabulls Securities Limited can help. With their market insights, stock market investment , and user-friendly platforms, helping you choose and understand smart investment tips.

FAQs

1. What is a good credit score in India?

750 and above is a good credit score. It qualifies you for credit cards and loans on subsidised interest rates.

2. How can I see my free credit score?

You can get it free of cost once every year from legitimate websites like CIBIL, Experian, Equifax or avail the benefit of apps like Paytm and Paisabazaar that offer free checks at intervals.

3. How many months will it take to improve my credit score?

It will take 3 to 6 months, depending on what you do and where your current score stands.

4. Is it possible to create a credit score without a credit card?

Yes. You can take a consumer durables loan, secured loan, or utility bill payment on websites which get reported to the credit bureaus.

5. Why would a credit score suddenly drop?

It could drop due to a late payment, overuse of credit cards, default on a loan, or a string of several new credit inquiries.

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