Your credit score is a three-digit numerical value that reflects your credibility. It's based on your credit history, which is extracted from details in your credit report like the ‘Accounts' and 'Requests' pages. It normally falls between 300 and 900. The nearer your credit score is to 900, the more likely your loan application or credit card will be approved.
CIBIL™, Equifax, CRIF High Mark, and Experian are the four authorized credit bureaus in India. An individual is entitled to one free credit report per year. You have the option of obtaining a credit report and credit score from any one of the four credit bureaus.
There is a lot of detail in a credit report. At first glance, it may appear to be too technical for your eyes. It is, however, simple to decipher once you are familiar with the report's various terminology.
How Is My Credit Score Calculated?
When a lender evaluates a loan application, the credit score is a major factor to consider. As a consequence, it's vital to comprehend how the score is computed. Although your credit score is calculated by a proprietary algorithm, the most important components of the score are based on an individual's loan payment activities.
- Your payment history: Have you made your repayments on time? Have you missed any payments? This information has a considerable impact on your credit score. It is therefore important to make timely payments on your credit card or loans.
- Different credit types: You have to strike a balance between secured and unsecured loans. Having too many unsecured loans, like personal loans or credit card balance, are not healthy for your credit score.
- Having too many inquiries on your credit: When you apply for multiple loans at the same time, you are going to have too many inquiries on your credit report. This does not bode well for your credit score as too many inquiries translate into credit hungry applicants, who are not good for the lender’s books. Give enough gap between two loan applications to ensure that this doesn’t happen.
- Your credit utilization pattern: It is important to maintain a healthy credit utilization ratio. A high credit utilization means that you are burdening your cash flow and may be forced to default at some point. A high credit utilization ratio means a lower credit score.
Benefits Of Maintaining A Healthy Credit Score
Having a good credit score has a lot of advantages for your loan approvals; Higher credit score means -
Faster loan approvals
Higher loan amounts
Lower interest rates
Best loan terms and other benefits
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