A credit score plays a vital role in your financial life. It determines whether you can get a loan, credit card, or even a rental home. For many, it’s the deciding factor in accessing financial products or services with favorable terms. If your credit score is good, banks and financial institutions will readily approve your loan or credit card applications. However, a poor score can limit your options and make borrowing costly.
What is a Credit Score?
A credit score, often referred to as a CIBIL score, is a three-digit number reflecting your financial behavior. This score is calculated by credit bureaus based on your borrowing and repayment history. It indicates to lenders how likely you are to repay a loan on time.
Key Factors Influencing Credit Score:
Payment History: Paying credit card bills or EMIs on time positively impacts your score. Delays or defaults reduce it significantly.
Credit Utilization Ratio: This is the percentage of your credit limit you are using. Keeping it below 30% is ideal for a good score.
Credit History Length: Longer credit histories show lenders how well you’ve managed credit over time.
Types of Credit: A mix of secured loans (like home loans) and unsecured loans (like personal loans or credit cards) improves your score.
New Credit Applications: Multiple loan or credit card applications in a short time can lower your score as they indicate credit hunger.
If your credit score is low, don’t worry—it’s possible to improve it with consistent efforts.
Pay Bills on Time: Set reminders or enable auto-pay for timely payments of EMIs and credit card bills.
Keep Credit Utilization Low: Aim to use less than 30% of your credit limit. If needed, request a credit limit increase to lower your utilization ratio.
Avoid Frequent Credit Applications: Space out your loan or credit card applications to avoid multiple hard inquiries.
Monitor Your Credit Report: Regularly check your credit report for errors. If you find discrepancies, report them to the credit bureau.
Maintain a Healthy Credit Mix: Use a combination of secured and unsecured loans to demonstrate financial stability.
Settle Debts Quickly: Clear outstanding dues as soon as possible. If you can’t pay in full, try to make more than the minimum payment.
Don’t Close Old Credit Accounts: Keep your oldest accounts active to maintain a longer credit history.
How Credit Scores are Calculated
Credit bureaus like CIBIL, Experian, and Equifax calculate your credit score based on your financial activities. Here’s a general breakdown of their scoring system:
Payment History (35%): Reflects your consistency in paying loans and credit card bills.
Credit Utilization (30%): Evaluates the proportion of your credit usage against your limit.
Credit History Length (15%): Longer credit histories lead to better scores.
Credit Mix (10%): Having a variety of credit types boosts your score.
New Credit Inquiries (10%): Too many recent applications can negatively affect your score.
Loan Tenure: Longer repayment periods may be offered to trustworthy borrowers.
How to Check Your Credit Score
You can check your credit score online through credit bureaus or financial apps. Most provide a free annual report. To access it:
Visit the bureau’s website or a partnered financial platform.
Enter details like PAN number and mobile number.
Verify via OTP to view your score.
Final Thought
A credit score is more than just a number—it’s your financial reputation. By maintaining a high score, you ensure easy access to loans, lower interest rates, and better financial opportunities. Start managing your credit responsibly today to build a secure financial future.
Nisha Chawla is a seasoned professional with 15 years of experience in banking, insurance, investment, and the debt sector. Holding a B.Com degree, she has been writing for the past five years, offering valuable insights on banking, loans, and financial schemes. Her passion for writing brings clarity to complex financial topics.