So, you wanna get those credit cards and loans? Well, having a credit score of 750 or higher can increase your chances of getting approved! Your credit score is basically a three-digit number that tells the lender how trustworthy you are with credit.
But, let's be real, do you really know how that number is calculated? Knowing how your credit score is calculated in India can help you make better decisions when it comes to managing your credit.
Build a solid credit history, get those approvals with ease, and enjoy better credit terms by understanding the do's and don'ts of credit handling.
In India, the following four RBI-licensed credit bureaus are tasked with the job of collecting, collating, and aggregating credit data:
Each bureau uses a different algorithm to calculate your credit score. Moreover, the factors used for such calculations and their corresponding weightage differ from one credit bureau to the next.
The following factors are taken into consideration while calculating credit scores in India:
Your credit score highly depends on your repayment history, which accounts for 30% of the score. This includes on-time payments, missed dues, and defaults on loans and cards. Financial institutions share this data with credit bureaus monthly, covering the last seven years.
Keep your credit utilization ratio (CUR) healthy by using only up to 30% of your credit limit. Anything more than that can hurt your credit score, indicating you are not managing your credit well and are at a higher risk of defaulting on loans.
Credit score calculators consider credit mix (10%) and credit history length (15%). To improve your credit score, diversify your credit mix with secured and unsecured products and maintain timely payments on older accounts.
Each time you apply for credit or a loan, the lender checks your credit score with a hard inquiry. Multiple inquiries in a row can make you look desperate for credit and decrease your score. Rejections also lower your score. To avoid this, use online credit score calculators to check your score beforehand. Additionally, check eligibility criteria and space out inquiries by at least six months.
Understanding how to calculate your credit score can help you avoid mistakes like missed payments and frequent credit inquiries while encouraging you to maintain a healthy credit mix. You can qualify for the best credit cards with top-notch rewards by improving your credit score.
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Credit scores are calculated by four major RBI-authorised credit bureaus in India using different algorithms. However, factors like your repayment history, credit utilisation ratio, credit mix and duration, and credit inquiries are considered during such calculations.
A credit score of 750 is considered a good credit score in India. However, credit score requirements may vary from one lender to the next.
Yes. You can visit any one of the four RBI-licensed credit bureau websites for an instant credit score check for free once a year. Alternatively, you can use credit score calculators available on common aggregator websites.
Yes. You can boost your credit score by clearing dues timely, keeping your credit utilisation ratio in check, and refraining from frequent credit inquiries.