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Getting a loan isn’t just about applying; it’s about whether the bank or lender trusts you enough to lend money. This trust is measured by a credit score—a three-digit number that holds the key to your loan approval. If you’ve ever applied for a loan, a credit card, or even a home loan, your credit score plays a big role in the decision.
But what exactly is a credit score? How does it impact your chances of getting a loan? More importantly, how can you check it for free? Let’s dive into everything you need to know about your credit score and its role in loan approvals.
A credit score is a numerical rating that reflects your creditworthiness. In simple terms, it tells lenders how likely you are to repay a loan. The score usually ranges between 300 and 900, with a higher score meaning better chances of getting approved.
Here’s a general breakdown:
Lenders use this score to decide whether to give you a loan, how much to lend, and what interest rate to charge.
Your credit score isn’t just a random number; it’s calculated based on several key factors:
Your history of repaying debts is the most important factor. If you’ve made all your loan and credit card payments on time, your score will be high. Late payments, defaults, or missing EMIs can hurt your score.
This refers to how much credit you’re using compared to your total limit. If you have a credit limit of ₹1,00,000 and you use ₹90,000, your utilization is 90%, which is considered high and risky. Keeping it below 30% is recommended for a good score.
The longer your credit history, the better your score. If you’ve been using credit responsibly for years, it shows lenders that you’re reliable.
Having a mix of credit types (credit cards, personal loans, home loans, etc.) is beneficial. It shows you can manage different types of credit responsibly.
Every time you apply for a loan, the lender checks your credit report. Too many inquiries in a short time can lower your score, as it indicates that you are desperate for credit.
A good credit score doesn’t just help in getting a loan. It also brings several advantages:
Checking your credit score regularly is essential to ensure it stays high. Thankfully, you can check it for free through several platforms:
India has four main credit bureaus:
Every individual is entitled to one free credit report per year from each bureau.
Many banks and fintech apps offer free credit score checks. Some popular ones include:
Many banks provide free credit score checking through their net banking services. Check with your bank to see if this option is available.
RBI has directed credit bureaus to provide free credit scores once a year, so you can visit official sites and check your report.
If your credit score isn’t where you want it to be, don’t worry. Here are some ways to boost it:
Late payments hurt your score. Set reminders or automate payments to never miss a due date.
Try to keep your credit card usage below 30% of the total credit limit.
Every loan inquiry lowers your score slightly. Apply for credit only when necessary.
Having different types of credit (credit cards, home loans, personal loans) and handling them responsibly can help your score.
Sometimes, errors in your credit report can pull your score down. If you notice any mistakes, report them to the credit bureau immediately.
Old credit accounts help in building a long credit history. Instead of closing them, keep them active with minimal use.
Your credit score is the secret behind whether you will get a loan or not. It is a financial passport that lenders use to judge your credibility. A high credit score means easy loan approval, lower interest rates, and better financial opportunities. Checking it regularly and maintaining it responsibly will ensure you never face trouble when applying for a loan. Keep track of your credit score for free and take control of your financial future today!
