Updated on: Jan 11th, 2022
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6 min read
Credit Score is a measure of a person’s capability to pay back a debt.
A credit score ranges between 300 – 900 points. The higher your credit score, the better are your chances at availing a loan or getting a credit card. In short, one of the major factors that play a role in deciding whether an applicant is eligible to get a new line of credit is his creditworthiness.
The credit bureau determines your credit score after taking various aspects such as the period of your credit history, repayment capacity and credit inquiries among others into account. The banks/financial institutions refer to this score to recognise an individual’s ability to repay the loan. Having an excellent credit score gives you the power to negotiate with the lender for better interest rates on your loan. Individuals with good score are also offered better pricing and special concession on the interest rates.
Being credit aware means you are responsible enough in handling your finances and improving your creditworthiness. The Reserve Bank of India (RBI) has instructed credit information companies or credit rating agencies to create credit awareness among consumers about credit behaviour and credit scores to manage finances better.
As mentioned earlier, an individual’s credit score can range from 300 to 900 points. The higher the credit score, the better the chances of getting a loan. Here are the different credit score ranges and their significance:
Credit scores are calculated by the Credit Information Companies such as – CIBIL Score TransUnion, Experian, Equifax Credit Score and High Mark. When an individual makes a transaction relevant to determining their credit score, the banks send the transaction details to the credit bureaus. The RBI mandates this transfer of data.
When a bank wishes to check an individual’s credit score, they approach one of the bureaus for his/her credit report. Once the bureau receives information from the banks, they start accumulating more information about the individual’s financial habits from other institutions. They compile this information and formulate the credit report. A credit report is essentially a financial marks card and contains the individual’s credit score.
A person’s credit score is affected by several factors:
There are a few ways of fixing or improving one’s credit score:
Credit score ranges from 300-900, influencing loan approvals and interest rates. Credit bureaus determine scores using credit history and repayment capacity. Good credit scores lead to better terms. Credit awareness is crucial for managing finances. Credit scores range from NA/NH (no history) to 750-900 (excellent). Credit scores calculated by credit information companies. Various factors affect credit score. To improve, check credit report, settle outstanding bills, monitor credit utilization, maintain old accounts, and plan finances.