Free Credit Score Check
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What is a Credit Score ?
A credit score is a 3-digit number that represents your creditworthiness. When you apply for a loan, lenders perform a credit score check to assess your repayment ability. It serves as a prediction for lenders that you can repay your loan on time based on your credit report.
A credit score is based on several factors, including your credit history, total debts, repayment history, etc. Four major credit bureaus licensed by the Reserve Bank of India (RBI) provide credit reports for individuals and businesses in India. These are TransUnion CIBIL, Experian, Equifax, and CRIF Highmark.
Credit Score Range
How is the Credit Score Calculated ?
Your credit score is derived from your credit history. The responsibility of calculating it falls into the lap of Credit bureaus. All four credit bureaus (CRIF, CIBIL™, Equifax, Experian) use their own algorithms to calculate your credit score. Some factors need to be considered when calculating your credit score, which are as follows:
Payment History
Your history of paying bills & EMIs indicates how consistently you've met your financial obligations. A strong repayment track record reflects financial discipline and creditworthiness, making you a low-risk borrower in the eyes of lenders. However, delays or defaults in payments can negatively impact your credit score, reducing your chances of loan approval.
Credit Utilisation Ratio
Your total outstanding balance is divided by your credit limit to reach this percentage. You should ideally only use 30% to 40% of the credit limit to obtain a high score. For example, if you have a credit limit of ₹1,00,000 and have utilized your credit limit in full, even if you have been paying on time, your credit score may be low due to high credit utilization.
Credit Mix
Your credit mix refers to the different types of credit accounts you hold, such as personal loans, auto loans, home loans, and credit cards. A balanced mix of secured and unsecured credits managed responsibly positively impacts your credit score. However, relying too much on unsecured credits (like personal loans) indicates over-dependence on credit, slightly affecting your score.
Impact of Hard Inquiries
Each time you apply for a new credit facility, such as a loan or credit card, the lender performs a credit check to evaluate your repayment capacity. These checks are known as hard inquiries. While occasional inquiries are routine, multiple hard inquiries within a short span can adversely affect your credit score. This pattern may signal excessive reliance on credit or financial stress, leading lenders to view you as a higher-risk applicant.
How Is the Credit Score Calculated ?
Credit score is derived from your credit history. The responsibility of calculating credit score falls into the lap of Credit bureaus. There are factors that need to be considered when calculating your credit score which are as follows:
Payment History
Your history of paying bills & EMIs indicates how consistently you've met your financial obligations. A strong repayment track record reflects financial discipline and creditworthiness, making you a low-risk borrower in the eyes of lenders. However, delays or defaults in payments can negatively impact your credit score, reducing your chances of loan approval.
Credit Utilisation Ratio
Your total outstanding balance is divided by your credit limit to reach this percentage. You should ideally only use 30% to 40% of the credit limit to obtain a high score. For example, if you have a credit limit of ₹1,00,000 and have utilized your credit limit in full, even if you have been paying on time, your credit score may be low due to high credit utilization.
Credit Mix
Your credit mix refers to the different types of credit accounts you hold, such as personal loans, auto loans, home loans, and credit cards. A balanced mix of secured and unsecured credits managed responsibly positively impacts your credit score. However, relying too much on unsecured credits (like personal loans) indicates over-dependence on credit, slightly affecting your score.
Impact of Hard Inquiries
Each time you apply for a new credit facility, such as a loan or credit card, the lender performs a credit check to evaluate your repayment capacity. These checks are known as hard inquiries. While occasional inquiries are routine, multiple hard inquiries within a short span can adversely affect your credit score. This pattern may signal excessive reliance on credit or financial stress, leading lenders to view you as a higher-risk applicant.
Importance of High Credit score
Creditworthiness
A high score establishes trust and increases future borrowing opportunities.
Credit or Loan Approval
A high score ensures higher chances of loan approval and better loan amounts.
Attractive Interest Rate
A high credit score ensures better loan interest rates, making it essential to maintain a strong score.
How Can You Increase Your Credit Score ?
There is no rocket science; improving your credit score is easy & requires you to have some good financial habits! Here's how you do it:
Avoid submitting several loan applications
Several rejected loan applications can have an adverse effect on your credit score; thus, if you want to raise your credit score, you should refrain from doing so
Do not exhaust your credit card limit.
Doing a credit score check and being aware of its limitations is essential. Maintaining your credit utilisation below 30% of your available credit limit is advised.
Pay your credit card bills & EMIs on time.
It's a good idea to schedule your repayments using the EMI calculator. Using an EMI calculator, you can plan your EMI and prevent default or delay. Your credit score will rise if you make your repayments on schedule.
Select the loan amount.
You should weigh all the aspects while deciding on the loan amount. If you owe a significant amount relative to your total credit limit or income, it can lower your score because it may indicate a higher risk of default.
Maintain a balanced Credit Mix.
Having a mix of credit types shows lenders your ability to responsibly handle different kinds of debt. So, one should have a balanced mix of credit - combining secured and unsecured loans impacts your credit score positively.
Think before becoming a Guarantor.
Being a guarantor carries some risk because your credit score will suffer if the primary borrower defaults. Accepting such arrangements should only be done if you are confident in the borrower's ability to repay and their financial stability.
Your Credit Health is Important…
You want a home loan, auto loan, or any other type. Your credit score will define whether or not you’ll be able to get what you seek, which is an upgrade in your lifestyle. Keeping track of your credit score helps you make informed decisions that contribute to your financial health.
Frequently Asked Questions (FAQs)
Frequently Asked Questions
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