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Credit scores are a reflection of the responsible credit behaviour of an individual. Individuals with a good credit score are always preferred by lenders. Today, most lenders use a credit score to determine an individual’s creditworthiness. Besides deciding the eligibility of a prospective borrower, the credit score also determines the amount of loan that an individual is eligible for as well as the interest rates on the loan.
If you are wondering what exactly constitutes a good credit score and how it is calculated, we have all the details for you. Read on to find out everything about a good credit score and the various benefits it offers.
What is a credit score?
A credit score is expressed in the form of a three-digit number that ranges between 300 to 900. It is a representation of an individual’s creditworthiness. Lenders refer to your credit score before approving your credit application. A good credit score is certainly a winner in every loan or credit application. A credit score of 750 and above is considered a good credit score.
In India, credit scores are generated by credit bureaus like Equifax, CIBIL™, Experian™, CRIF High Mark™, etc. Credit scores from each credit bureau may vary slightly since they have a different algorithm for calculating credit scores.
What is Considered a Good CIBIL™ Score Range?
A credit score ranging from 750 to 900 is considered an excellent credit score. Banks, NBFCs and other online lenders prefer candidates who have a credit score in this range. If your credit score is in this range, you will be eligible for most credit products. The following table will help you understand the CIBIL™ score range and its meaning.
Credit Score Range
Grade
What it means
750-900
Excellent
Eligible for low-interest rates and higher approval chances
700-749
Good
Can become eligible for better interest rates
650-699
Fair
The options are limited, but credit approval is possible.
600-649
Doubtful
Higher interest rates on loans and credit card approval could be harder
Below 600
Immediate Action Required
Approval chances are very
As the table illustrates, having a credit score of 750 and above is considered to be excellent and it can help in easily availing several credit opportunities.
What are the Benefits of a Good Credit Score?
Making timely repayments of loans and credit card bills can fetch you a good credit score. This has numerous benefits. Here, we have listed some of the major benefits of a good credit score:
1. Low-Interest Rates on All Types of Loans
This is a major benefit when it comes to having a good credit score. Everyone aims to maintain good credit so that loans can be availed at low-interest rates. This can further help in paying off loans faster and reduces a significant amount of financial burden. Even a slight reduction in big-ticket loans such as home loan, loan against property, etc., can save you a lot of money in the long run.
2. Improved Approval Chances for Loans and Credit Card
Every lender first goes through your credit score and reports as soon as you apply for a loan or credit card. This is called a hard enquiry and it can also impact your credit score. The impact can hurt your credit score in case the application gets rejected. However, with a good credit score, the credit approval chances are higher since lenders will not have a strong reason to reject your application.
3. Higher Credit Limits
Your income combined with a good credit score is a key determinant of your loan or credit card approval. These can get you a higher loan amount or higher credit limit on credit cards. Lenders will see your creditworthiness and consider you to be a responsible borrower because of these two factors. If you have a low credit score, you may get a loan or card, but the interest rates may be higher, and the credit limit may be lower.
4. More Negotiating Power
When a poor credit score, there are more chances of getting a loan at higher interest rates. Repayment of such loans can become burdensome in the future. The applicant will also not have any negotiating power to request a reduction in interest rate. On the contrary, individuals with a good credit score will have higher approval chances on the loan and card applications. They will also have the power to negotiate with lenders for lower interest rates by comparing offers from other lenders.
How Can You Maintain A Good Credit Score?
A good credit score comes with responsible credit behaviour. Here are some of the factors which will help you in maintaining a good credit score:
- Consistent Repayment: Credit score calculations lay nearly 35% weightage on your payment history. If you want to maintain a good credit score all the time, your repayment record should be 100% positive. For this, you must ensure to never miss a repayment.
- Low Credit Utilisation: Experts recommend that keeping your credit card utilisation ratio below 30% will help you gain a good credit score over time. It indicates that you are not credit hungry. Maxing out credit card limit or defaulting on the bill payments can work against a good credit score. Therefore, use your credit card only when it is essential or for emergencies when you are unable to pay through cash.
- Credit Diversification: Lenders often try to verify the diversity of credit exposure you have had. Having a mixture of a variety of credit is a good reflection upon your credit report and helps to maintain a good credit score. Use a credit card, opt for both secured and unsecured loans to attain a healthy mixture of credit.
- Avoiding Multiple Credit Applications: At times, you may end up applying for multiple credit cards or loans in the hope of fetching a good option. However, this can work against your credit score. Each time you apply for a credit, a hard enquiry is raised by the lender. Multiple such hard inquiries will impact your credit score negatively. If your credit application gets rejected, lenders will not be comfortable to lend you a credit facility in the future. Hence avoid applying for multiple credit options to maintain a good credit score.
- Length of Your Credit History: When you take your first credit, your credit score will take a few months to be updated. This could range anywhere between 3 to 6 months. This makes it difficult for the lender while evaluating your credit profile due to a lack of credit history. A lengthy credit history helps with a detailed understanding of your credit behaviour and in turn, plays an important role in credit approval. Hence, focussing on staying credit active and regular borrowings are important to maintain a good credit score.
- Closing Old Credit Cards: If you have piled up too many credit cards at once, you should consider closing those which are not needed. However, closing an old credit card can impact your credit score. This is because the length of your credit history is equally important for your credit score. Hence, carefully evaluate the options of credit cards that can be closed to avoid unwanted debt pile up.
- Avoid Paying Only Minimum Due: Most credit card issuers allow you to pay up to 5% to 10% of the outstanding amount as the minimum due amount. This way, you can avoid a late payment or default. The rest of the balance gets carried to the next bill cycle along with interest. If you want to avoid interests from piling up, in the long run, try to make the complete bill payment instead of paying only the minimum amount due. To maintain a good credit score, always pay in full and on time.
- Score Builder Loans: Currently, there are exclusive loans in the market that are designed for new credit users who do not have any borrowing history. These are known as score builder loans. These loans may come in smaller amounts and are mainly meant for building a credit score. On regular repayment of the loan, you will have a positive credit score which can make you eligible for various other credit products at better terms.
10 Key Things That You Must Know About Credit Score
If you are new to the concept of credit or CIBIL™ score, you may have several questions about how it works, what impacts credit score, etc. Here are some of the additional aspects you must know about credit score.
1. You can check your credit score and get a credit report for free
Most credit bureaus and third-party websites provide credit scores for free. You can sign up with them and check your credit score for free at any time. It is good to check your credit score frequently to keep a close watch on your credit health. While checking your credit report, you can look for any errors and get them resolved by raising a dispute with the credit bureaus.
2. Not everyone has a credit score
A credit score is available only after an individual takes some form of credit from banks, NBFCs or online lenders. This can include credit card, personal loan, home loan, two-wheeler loans, loan against property, gold loan, car loan, etc. If you have never borrowed before, you would not have any credit score.
3. Factors that Make your Credit Score
If you are wondering how a credit score is calculated, you must know that it is based on factors such as your repayment history, credit utilisation ratio, credit age, credit mix and number of hard enquiries, etc. You will have a good credit score if you have a good combination of all of these factors.
4. It takes time to build an excellent credit score
Building an excellent CIBIL™ score requires a mixture of all credits, low credit utilisation ratio on credit cards, long credit history, etc. Even if all these factors come into play, it takes a while to build an excellent score.
5. Poor credit score can be improved
Poor credit score could be due to various reasons. A negative status on your credit report can be disheartening, but it can always be improved with prudent credit behaviour. You can take actions to improve your credit score by clearing the past dues to the lender.
6. Checking your own credit score doesn’t hurt it
There is a misconception among people that checking your credit score frequently hurts it. It’s a myth. Checking your credit score often helps keep track of your credit health. It does not reduce at any point in time. Hence monitor your credit health frequently to have a good credit score.
7. Credit score from different credit bureaus is not the same
When you check your credit score from more than one credit bureau, you will surprisingly find it to be different. It will not be the same as each credit bureau has a different mechanism to calculate the credit score. The weightage of the score given to each parameter varies as there is a slight difference in the percentage allocation.
8. Multiple credit applications simultaneously can hurt your credit score
When you are in desperate need of money, you may tend to apply for a loan or credit card with multiple lenders in order to get approved at least from just one lender. Though the act is done by impulse, it can have a negative impact on your credit score. The multiple credit applications will invite multiple hard enquiries by the lender which can have a slight impact on your credit score.
9. Maxing out credit limit can impact your credit score
Although it is slightly hard to prevent the urge of using your credit card when you run out of money or you want to grab an exciting offer, you should be extra careful while using your card. Every credit card comes with a pre-approved credit limit up to which you can spend per month. Your credit score will go for a toss when you max out your credit card limit often. Hence, it is important you diligently use the card within your means as defaults can have a negative impact on the score.
10. A good credit score can fetch you better terms on all types of loans
When you have a good credit score, it bestows with you the power of negotiation. You can bargain with the lender for better interest rates as you have great credit health. It gives you an upper hand while borrowing from banks, NBFCs and online lenders. Apart from the better terms, you can also get higher approval chances on a loan or credit card application.
Points to Keep in Mind While Clearing Your Past Dues
- No Due Certificate: After paying your outstanding dues in full to the lender, obtain a ‘No Due Certificate’. This is the proof and indication that you have closed the loan completely.
- Incorrect Closure of Credit Card: Some agencies or the credit card issuer might offer you a discount on closing the outstanding dues on your credit card. Lured by the offer, you might tend to settle for 80% or 90% of the amount to be paid. However, this is not a complete closure. The discount will not be taken into consideration by the bureaus and eventually, you remain with bad credit. Hence, make a complete closure to clear your negative status completely.
- Removing negative issues from your credit report does not mean it will improve your credit score, it can only prevent a further drop. You should have a loan or credit card account active to get an improved credit score over a period.
- Becoming credit healthy does not happen in a day. You will have to be patient as there is a certain procedure followed across all banks and credit bureaus.
- Get your credit report and look for any errors on it. By raising a dispute resolution with the lender and credit bureau, you can get the errors removed.
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FAQs
1. What is a good credit score in India?
A credit score of 700 and above is considered a good credit score. Credit scores of 750+ are considered excellent. Individuals with high credit scores are eligible for all kinds of loans and credit cards. Borrowers with a good score can also get better interest rates.
2. How can I get a score of more than 700?
To enjoy a credit score of more than 700, you must ensure to follow the below-mentioned practices with regards to your credit:
- Make timely credit card and loan repayments
- Increase credit limit
- Keep credit utilisation to a minimum
- Avoid closing old credit card accounts
- Focus on the length of credit history
3. How long will it take for me to get the best CIBIL™ score of more than 700?
There is no defined or fixed time for credit score improvement. It could take 3-6 months of consistently good credit performance to bring up your score to 700 if you have not had a credit history. In case you have a poor credit history currently, this timeline could further extend to a few years.
4. Can I get a loan or credit card with a credit score of 500?
It is difficult to get approval for a loan or card with this credit score as it is considered a poor score. It is an indication that you have some negative issues that require immediate attention. You can clear your past loan or credit card issues to improve your credit score.
5. Will default from many years ago remain on my credit report?
Yes, it does. A default once made is reported to the credit bureaus who update it on the credit report. It remains on the credit report for up to 8 years.
6. Why is the credit score from all credit bureaus different?
As each credit bureau uses a different mechanism to calculate the credit score. The weightage on each parameter will be different for each bureau. However, the difference may not be huge.
7. Can I get approval on loans and credit cards with poor credit scores?
The chances are slim as the low score indicates you have negative issues with your credit. You may get approved for secured loans, but they will come with a higher rate of interest.
8. Is it possible to get an 850 credit score?
Yes, you can aim for a credit score of 850 if you have the following:
- Long-standing credit history
- 100% positive repayment track record
- Good financial stability in the past few years
- A strong source of income
- A low credit utilisation ratio
9. Who calculates my credit score?
Your credit score is calculated by the credit bureaus based on your credit activities that are reported by your lender. In India, credit scores are generated by credit bureaus like Equifax, CIBIL™, Experian™, CRIF High Mark™, etc.
10. Where can I check my credit score?
You can check your credit score with the credit bureaus directly. However, each credit bureau offers only one free credit score and report once a year. If you need your credit score more often, you’ll have to pay a fee. The best way to check your credit score for free is to use a trusted site like CreditMantri. We offer your latest credit score for free and a free credit health assessment with just a few clicks.
11. Can I get a loan with the credit score of 650?
Yes, you can! But the interest rates and other terms on the loan will not be favourable to you. You may not become eligible for a higher loan amount.
12. How often is my credit score updated?
There is no fixed time in updating your credit score. An update may happen when there is a hard enquiry, late payment, default, settled or written off account. There may not be any update if no credit activity takes place. Generally, most lenders report credit activity to the credit bureaus once a month.
13. Does checking my credit score frequently hurt it?
No, you can check your credit score any number of times, and it does not hurt it.
14. How can I get a good credit score?
To get a good credit score, you need to do the following:
- Make your repayments on time
- Keep your credit utilisation ratio low
- Diversify your credit
- Check your credit score frequently
- Use a credit card to have lengthy credit history
15. What is the difference between a credit report and credit score?
Your credit report is the detailed report of your credit activities which will also have your credit score. A credit score is a numerical expression that is calculated based on your credit activities reported by the lender.
16. How long will it take to improve your credit score?
There is no fixed time. Your consistent and disciplined financial behaviour over a sustained period will ensure credit score improvement. Since the credit score is based on consistent performance, one can assume you need to give yourself a minimum of six months for your score to show significant improvement, and sometimes the entire process can even take up to a year.
17. Can I get a loan or credit card with a credit score of 500?
It is difficult to get approved for a loan or card with this credit score as it is considered a poor score. It is an indication that you have some negative issues that require immediate attention. You can clear your past loan or credit card issues to improve your credit score.
18. After having closed all my past outstanding dues, will my credit score improve immediately?
Closing your past dues will prevent your credit score from further dropping but improving credit score takes time which can be done only if you have any form of credit open or active. By consistent repayment on the existing loan, your credit score will show an improvement gradually.
19. Will a default from many years ago still remain on my credit report?
Yes, it does. A default once made is reported to the credit bureaus who update it on the credit report. It remains on the credit report for up to 8 years.
20. Why is the credit score from all credit bureaus different?
As each credit bureau uses different mechanisms to calculate the credit score. The weightage on each parameter will be different for each bureau. However, the difference may not be huge.
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