All you need to know about credit scores


People hate to disclose their ages, weights and salaries. The not-so-recent addition to this list is their credit scores. A credit score is a number that summarises your credit history and is an indicator of your creditworthiness. This score is crucial for the approval of loans, credit cards or even mortgage options.

If you are new to handling your own finances and have been rattling your brain about your credit score, here is all you need to know about it.

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What is credit score?

It is a unique number which is given to every individual after a detailed analysis their credit report. In India, it is assigned by the Credit Information Bureau India Limited (CIBIL), which was founded in the year 2000 and has since then transformed the financial scene in the country.

What is an ideal score?

About 700 to 900 is an excellent credit score which is an indication that you are consistent with your past repayments. Your loans will be approved fairly fast and you are likely to get a good deal, too.

What Happens for scores below 700?

The minimum credit score for an individual is 300. If you are anywhere between 300 and 700, it is time to dig deep into your financial situation and correct it immediately.

Often, people are surprised to know about their credit score and are in a hurry to fix it. But remember there are no shortcuts to it. It is an ongoing process and it requires time and effort. Here are a few things you can do when you are working towards improving your credit score:

  1. Get rid of unnecessary credit cards: Have you experienced the rush of owning too many credit cards at once? Does holding them between your fingers and swiping them at different places gives you joy? Well, the trend is off now. Also, owning more than what is necessary is a negative thing and indicates your dependency on them. You can have two to three credit cards at the maximum, each with a limit of INR 25,000.
  2. 2. Do not delay or miss payments: If you want to rebuild your credit score or are looking to maintain it, you should start paying your bills or current debt on time. Although it is tempting to pay just the minimum balance for now and repay the rest of the amount later, this will only let you do away with the late payment fee and doesn't solve the larger problem. You will be charged with heavy interest rates and the next thing you know, your credit score takes a dip. Utilise online or mobile payment options, keep reminders or even automate them with standing instructions.
  3. Strike a balance between unsecured and secured loans: If you are obtaining personal loans, this will have a negative impact on your score. On the other hand, secured loans like home loans create a positive impact as it is seen as an asset creation. So, it's time to minimise your unsecured loans.
  4. Do not use credit cards to their maximum limits: If you are using your credit cards up to their full limits every month, it can lead to a decreased score. Having a credit card will remain advantageous, only if you use it optimally.
  5. Do not apply for too many loans: Do not apply for a loan unless you are in dire need of it. Maintain a gap of six months between two loans to be on the safer side. If you are in an emergency situation, you can connect with professionals like CreditMantri, who will put you through the right lender.

Apart from this, do not forget to keep a track of your credit score by checking online reports from time to time.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)


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