What is a credit score?

You've definitely heard of the term "credit score" if you're seeking to apply for a loan, mortgage, or credit card. Yet, what exactly is a credit score and why is it so significant?

A credit score is only a three-digit figure that shows your creditworthiness and ranges from 300 to 900. The credit score has an impact on both the loan amount approved and the interest rate charged on the loan. Your chances of getting approved for loans or credit cards, as well as better interest rates and terms, increase with your credit score.

In India, who offers credit scores?

TransUnion, CIBIL (Credit Information Bureau (India) Limited), Equifax, Experian, and CRIF Highmark are the four main credit bureaus in the nation. These credit bureaus obtain and preserve credit data on people and organizations from a variety of lenders, including banks, credit card firms, and other financial institutions.

Depending on the credit bureau you check with, your score may differ significantly because each credit bureau uses a different formula to determine credit ratings. The elements that affect your score, nevertheless, are typically the same for all bureaus. These include your credit use, credit history, length, types of credit used, and most current credit inquiries. Verify your credit rating.

A Decent Credit Score: What Is It?

A person with a higher credit score is in a stronger financial position and is more likely to be approved for a loan with a lower interest rate.

Score	Category	Meaning
NA/NH	No Point	You do not have a credit history.
300-549	Poor	a history of bad money management and missed payments. as a high-risk borrower, it was accepted.
550-649	Fair	There are many illustrations of insecure loans, payment problems, etc. Moderate default risk for the borrower
650-749	Good	a credit history that is well-rounded, showing evidence of wise financial decisions and prompt repayments. a risk-averse borrower.
750-799	Very Good	a proven track record of prudent financial management, effective credit use, and absence of defaults.
800-900	Excellent	This is the highest credit score range offered by Experian, reflecting a credit history that is almost flawless.

Experian Credit Score Calculation: How Does It Work?

Factors	Percentage	What Affects These Factors?
Payment background	35%	Your credit score may be raised if you pay off your credit accounts on time each month, including loans, EMIs, and credit card balances.
Credit usage	30%	Your credit limit use percentage, account balances, and the total amount you owe are all factors.
Credit history duration	15%	Your credit accounts' average ages are taken into consideration. Credit cards and older accounts can persuade lenders that you have a trustworthy credit history.
Credit mix	10%	It's advised to have a healthy balance between secured loans, such as mortgages or vehicle loans, and unsecured loans, such as credit cards and personal loans, to show that you can handle both.
New credit	10%	Have you recently opened new accounts or applied for new credit (like a loan or a credit card)? A higher volume of inquiries may result in a lower score.

How may credit scores be raised?

There are a few straightforward things you can do to improve your credit score. Remember the following advice:

Make sure you pay your payments on time first and foremost. It's crucial to remember due dates because even one late payment might harm your credit score.
Your credit utilisation ratio, or how much credit you're using in relation to how much credit you have available, is another crucial factor to take into account. Your score can go up if you keep your ratio low.
A healthy mix of credit, including both secured and unsecured credit, can further demonstrate your financial responsibility. Maintaining this balance and not relying too heavily on one type of financing are essential.
Don't get rid of outdated credit cards or accounts too quickly. Lenders may be convinced that you have a history of responsible behavior if they see a long credit history.
Only apply for additional credit if it is really essential. When you submit too many applications at once, you may appear dangerous to lenders, and your credit may suffer.
Last but not least, it's a good idea to regularly check your credit report for any mistakes or inaccuracies that could lower your score.