A credit score is a numeric representation of an individual’s creditworthiness. It is gives lenders such as banks and non-banking finance companies (NBFC) to determine the status of your financial health. There are a total of four credit bureaus in the country viz, TransUnion (CIBIL), Equifax, Experian Credit Information Company, and High Mark Credit Information Services. All of these bureaus are regulated by the Reserve Bank of India (RBI). Each credit bureau has their own method and algorithm to calculate credit scores. A credit score is calculated after considering your credit history and repayment behaviour.
How To Read Your Credit Score?
A credit score is a 3 digit number between 300-900, 900 being the highest. Generally, banks and non-banking finance companies (NBFC) consider a credit score of 750 and above as ideal. If you have a higher the credit score, it increases your chances of getting quick loan approvals, home loans, personal loans, car loans, low interest rate credit cards, approval for higher credit limits, and so on.
What Does Your Credit Score Say About You?
Prompt Repayment Behaviour
Your repayment behaviour accounts for 35% of you credit score. Therefore, it is of utmost importance to pay your bills and monthly EMIs on time. An irresponsible payment behaviour not only affects your credit score but also suggests that you are not committed towards repayment. Lenders will look at you as a possible defaulter and hence not approve your loan or credit card application.
Your credit report has details of your credit history, date of last payment, amount of loan or overdue, account holder type – joint or individual, amount of loan or overdue, total outstanding and a month-based record of payments. It is important to maintain a low credit utilisation ratio. This essentially means using 30-40% of your credit limit. On the other hand, if you use maximum credit it shows credit hungriness irrespective of when you repay it.
How To Start Building a Credit History?
In order to start building a a credit history you need to have either a small personal loan or a credit card. If you have never availed a loan or used a credit card, you will not have a credit history which will make it a bit difficult for you to approach a bank for a loan. You can get a secured credit card which is issued against some security such as fixed deposits with banks. You have to maintain a good payment record in order to maintain a high credit score.
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