Free Credit Score Check
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What is a Credit Score ?
Acreditscoreisa3-digitnumberthatrepresentsyourcreditworthiness.Whenyouapplyforaloan,lendersperformacreditscorechecktoassessyourabilitytorepay.Itservesasapredictionforlendersthatyouwillbeabletorepayyourloanbackontimebasedonyourcreditreportcheck.
Acreditscoreisbasedonseveralfactors,includingyourcredithistory,totaldebtlevels,repaymenthistory,andotherfactors.InIndia,fourmajorcreditbureauslicensedbytheReserveBankofIndia(RBI)providecreditreportsandscoresforindividualsandbusinesses.TheseareTransUnionCIBIL,Experian,Equifax,andCRIFHighmark.
Credit Score Categorization
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
What does it reflect? It reflects whether you have been paying bills on time and EMIs on a regular basis. If yes, then this attitude showcases that you can be trusted with borrowing and it is highly unlikely that you will default on your payments. However, if you fail to make timely payments your credit score will likely fall and your loan application may get rejected.
Credit Utilisation Ratio
Your total outstanding balance is divided by your total credit limit to arrive at this percentage. To obtain a high score, you should ideally only use 30 to 40 percent of the credit you are eligible for. For example you have a credit limit of 1,00,000 and you have utilized your credit limit in full, even if you have been paying on time still 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 loans, managed responsibly, reflects your ability to handle diverse credit types, positively impacting your credit profile.However, relying too much on unsecured loans (like personal loans) may indicate over-dependence on credit, which could slightly affect your score.
Impact of Hard Inquiries
Whenever you apply for a new credit product, lenders assess your creditworthiness by checking your credit report. These lender-initiated checks are called hard inquiries. Having too many hard inquiries within a short period can negatively impact your credit score, as it may indicate credit-hungry behavior. Multiple applications at the same time can cause a temporary drop in your score.
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
What does it reflect? It reflects whether you have been paying bills on time and EMIs on a regular basis. If yes, then this attitude showcases that you can be trusted with borrowing and it is highly unlikely that you will default on your payments. However, if you fail to make timely payments your credit score will likely fall and your loan application may get rejected.
Credit Utilisation Ratio
Your total outstanding balance is divided by your total credit limit to arrive at this percentage. To obtain a high score, you should ideally only use 30 to 40 percent of the credit you are eligible for. For example you have a credit limit of 1,00,000 and you have utilized your credit limit in full, even if you have been paying on time still 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 loans, managed responsibly, reflects your ability to handle diverse credit types, positively impacting your credit profile.However, relying too much on unsecured loans (like personal loans) may indicate over-dependence on credit, which could slightly affect your score.
Impact of Hard Inquiries
Whenever you apply for a new credit product, lenders assess your creditworthiness by checking your credit report. These lender-initiated checks are called hard inquiries. Having too many hard inquiries within a short period can negatively impact your credit score, as it may indicate credit-hungry behavior. Multiple applications at the same time can cause a temporary drop in your score.
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 ?
A high credit score boosts loan approval chances. Pay bills on time, use credit wisely, and avoid multiple loan applications.
Avoid submitting several loan applications
Several rejected loan applications can have a negative effect on your credit score, thus if you want to raise your credit score, you should refrain from doing so
Keep the credit card utilization ratio constant
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.
Make your payments on time
It's a good idea to schedule your repayments ahead of time using the EMI calculator. You can plan your EMI and prevent default or delay by using an EMI calculator. 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 large 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 handle different kinds of debt responsibly. So, one should have a balanced mix of credit - combining secured and unsecured loan, 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 of loan. 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 a track of your credit score helps you make informed decisions contributing to your overall financial health.
Frequently Asked Questions (FAQs)
Frequently Asked Questions
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