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What is a Credit Score? How to Check it

What is a Credit Score? How to Check it

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Ever been in a situation where your loan application was rejected? Or you applied for a credit card and didn’t get one or received it with a low limit? You’ve probably been asked to improve your credit score and are wondering “what is a credit score?” Let us take a look at this important financial term and understand more about all these questions you just skimmed through.

What is a credit score?

Simply put, a credit score is your credit report card. It determines your creditworthiness based on your borrowing and repaying patterns over the years across a variety of lending instruments such as credit cards, personal loans, vehicle loans, and so on. Lenders rely heavily on this score to calculate the rates, tenure, and other terms before offering a loan. It is issued by an authorised credit rating agency. 

While there are 4 credit agencies in India (TransUnion CIBIL, Equifax, Experian and CRIF Highmark), TransUnion CIBIL is the most popular one, and many people use CIBIL score eponymously for credit score. A credit score is given on a scale where 900 is the highest. Any score in the range of 750 to 900 is considered very good.

What is the importance of a credit score?

When you apply for a credit product like a loan, an overdraft or a credit card from a bank or a non-banking financial institution (NBFC), they are taking a certain level of risk by loaning the money. There needs to be some form of a reference check that gives them confidence regarding the repayment of the loan. This reference check is done via the means of the credit score. 

Based on your past track record and financial history, lenders are able to gauge your creditworthiness based on the credit score and ascertain how much loan amount, tenure, and rate to offer to you. A good credit score means your chances of getting approved for products like credit cards and loans will be much higher. You will also, most likely, receive more competitive rates, better payment terms and higher loan limits.

How to check your credit score?

A frequently Googled search query is ‘how to check my credit score’. What used to be a fairly cumbersome process in the past is now swift and smooth. This can be done by directly visiting the credit agency’s website and entering your basic information, like name, mobile number, email, and PAN, to generate your credit report. You can check the score for free. With a paid subscription, you can see other relevant details of the report, as well. There are many banking and financial services aggregator websites that also allow you to check your credit score for free. You can even check your credit score through Fi as a new user on the app. If you want to know more details about financial and other relevant history that is stored with the credit agency, then you need to download your credit report from their site.

What information is available in the credit report?  

The credit report issued by the rating agency contains all information regarding your credit cards, personal and professional loans, auto loans, home loans, and overdraft facilities availed of. The information available is not just for active loans but also the ones in the past and the status for each, such as pre-closed, closed, defaulted, etc.

Apart from this, it contains:

  • Personal Information: name, birth date, PAN, Aadhar and other relevant identification numbers
  • Contact Information: address, email, phone numbers
  • Account Information: types of credit availed, name of institution, loan account number, duration of the relationship, the amount borrowed, amount repaid, dates of borrowing and repayment etc.
  • Employment Information: annual income and other details as reported by banks
  • Enquiry Information: when you make a loan application, the lender queries the credit rating agency to know your credit score and detailed report. The history of these requests is also maintained under this subsection

The CIBIL credit report, being the most widely used in India, is available in Hindi, Tamil, Malayalam, Kannada and Telugu, apart from English.

What causes a poor credit score?

Delayed or missed payments and defaulting on loans are the factors that cause the most adverse effect on your credit score. Another factor is borrowing from multiple lenders at the same time, as your repayment capacity may be under question. Once the score gets affected due to these factors and other causes, it can take years to rebuild it and apply for other loans on good terms. 

Having no credit history at all and making a high number of loan enquiries without actually borrowing is also known to lead to a poor credit score. It is a misconception that never having used a credit product, your credit score would be good. If you don’t use a lending product, then you have no credit history. This means no score can be assigned to you, hence an absence of it will not make you be looked upon more favourably by the lender. Do note that even credit cards count as lending products.

If you do have a credit score on the lower side, timely repayment of EMIs is one of the simplest and most effective for having a good credit score. Making full payments instead of partial ones also helps. Optimum utilisation of the credit limit is another advisable practice. It is also recommended to review your credit annually to keep a track of your financial health.

To conclude

It is not uncommon to avail of loans and other lending products to meet planned or unplanned financial requirements. In order to be prepared for it, you must know your credit score. Financial experts advise checking this once each year to avoid any unpleasant surprises when you apply for a loan or a credit card. The credit report also helps make your Fi account opening process quick and smooth, as the financial and employment status is easily verified and access granted accordingly.

Frequently Asked Questions

1. What's a good credit score?

The best credit score is 900. That is the maximum you can be awarded. Anything in the range of 750 - 900 is considered good, thus making you eligible for most of the credit products offered by banks, NBFCs, and other lenders.

2. How to know your credit score?

You can find your credit score either directly, through the website of the credit agency (like CIBIL), or through one of the banking and financial services aggregators available online. You can even check your credit score through Fi while opening an account. 

4. How can I get my credit score up in India?

  1. Pay your bills and credit card dues on time and in full to avoid late payments and high-interest charges.
  2. Keep your credit utilization ratio low.
  3. Avoid applying for too many credit cards or loans at once, as this can negatively impact your credit score.
  4. Monitor your credit report regularly and dispute any errors or inaccuracies to ensure that your credit score reflects your actual creditworthiness.

5. What if I have no credit score?

If you have no credit score, you can start building one by:

  1. Applying for a secured credit card or loan, where you put down a deposit or collateral to get approved.
  2. Paying your bills and rent on time, as some credit bureaus may consider this information to determine your creditworthiness.
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