What is meant by a credit score?
Your credit score represents your creditworthiness using a three-digit number. Credit scores indicate whether or not he/she will make loan repayments on time.
The Reserve Bank of India has licensed the following four credit information organisations/bodies:
- Credit Information Bureau India Limited (CIBIL)
- Equifax
- Experian
- Highmark
Among these the 3-digit CIBIL rating is the most widely used credit score.
How to check your credit score for free?
You can check your CIBIL score for free by following these ten simple steps:
- Visit the CIBIL website
- Click on ‘Get free CIBIL score and report’
- Provide details like your email address and name and a strong password
- Upload an identity proof (Aadhaar card,PAN card, Passport, or Voter card)
- Input your PIN code, phone number, and date of birth
- Proceed by clicking ‘Accept and continue’
- Input the OTP you received via SMS and click ‘Continue’
- Next, click ‘Go to dashboard’, then login to check your score
- Now you will be redirected to myscore.cibil.com
- Login by clicking on ‘Member login’ and CIBIL score will be visible
Credit score ranges and their meanings
800 and above: This is an excellent credit score range which indicates the borrower is low risk.
750 to 799: This range showcases good credit history.
701 to 749: This is a good range which indicates room for improvement.
651 to 700: This is a fair range indicating subprime borrowers, whomlenders deem likely to default.
300 to 650: This is a low range which makes loan approval very difficult.
CIBIL score range
A CIBIL score also ranges between 300 to 900. Additionally, NA/NH stands for not applicable or no history and refers to individuals who have never applied for credit.
750-900: Banks readily offer them loans and credit cards.
650-749: Lenders offer them loans but without any interest rate negotiations.
550-649: Borrowers with this fair score do not have many lenders offering them credit at low interest rates.
350-549: They are highly likely to default and hence rarely offered credit cards/loans.
Credit score calculation
CIBIL scores consist of four aspects, each of which have a certain weightage.
Payment history: 30% weightage
Credit exposure: 25% weightage
Credit duration and type: 25% weightage
Hard enquiries: 20% weightage
Why should you calculate your credit score?
Here are some benefits of checking your credit score regularly:
- Ability to analyse the impact your decisions have on your credit score
- Ability to confirm veracity of information provided
- Ability to find better loan and credit card offers
Does my credit score get impacted if I inquire about it?
No, checking your credit score regularly does not impact it. When an individual checks their own credit score it is a soft enquiry, as opposed to when lenders enquire about their score, which is a hard enquiry that reduces credit scores.
So, check your credit score for free at dailyfinserv.com.
Factors that lower credit/CIBIL scores
- Using anything above 30% of your credit limit may lower your score.
- Unpaid dues lower credit scores.
- Paying only the minimum amount due of the monthly principal amount indicates irresponsible payment behaviour and lowers credit scores.
- Making several credit applications will lead to several hard enquiries, which lower credit scores.
Advantages of a good credit score
- Lower interest rates
- Higher chances of availing pre-approved loans
- Easy and quick access to premium credit cards
- Easier approval of larger loan amounts and higher credit limit
Why do lenders check credit scores before approving loans?
Here are 3 reasons why:
To check if you are eligible of taking a loan
To determine principal loan amount, tenure, and rate of interest
To determine (the guarantor and their creditworthiness) i.e. whose obligation the borrower’s debt will be if they default
