Credit Score

What is a Credit Score

A credit score is a numerical representation of the creditworthiness of the individual. It is a 3 digit number ranging between 300-900, with 300 being the lowest and 900 being the highest score. A good or higher credit score comes with many benefits as it depicts that the individual is capable of paying back the borrowed loan amount. A poor credit score indicates your inability to pay back the loan amount on time.

Credit bureaus are responsible for calculating the credit score of the people on account of the length of credit history, repayment records, credit inquiries, etc.

As any person applies for the loan, banks and NBFCs mostly check the credit score of the applicant. A good credit score puts you in negotiating a position in terms of rate of interest, loan tenure and loan amount etc.

Credit Score Range and What It Means

The credits score ranges between 300-900. One should always thrive to increase their credit score to avail the many benefits which come along a good credit score.

The various credit score range is:

NA/NH: Credit score can only be calculated if you have a credit history. In case you have no credit history, the credit score will be mentioned as NA (Not Applicable)/NH (No History) in your credit report.

300 -549: This range is considered as bad credit score and if your credit score lies in between it implies that you have not repaid your payments on time, have defaulted or have unpaid dues.

550-649: This range is considered to be average. One can make efforts to improve the credit score by bettering their credit history.

650-749: This range is considered to be good and the lenders may grant your application for a loan or credit card.

750-900: This range is considered to be excellent in terms of credit history and the lenders happily offer loan products at a negotiable rate of interest and better deals and offers.

Who Computes Credit Score?

Credit Information Companies are responsible for computing the credit score of people. In India, the four top companies computing the credit score are:

  1. CIBIL TransUnion,
  2. Experian,
  3. Equifax and
  4. High Mark.

Once you make any relevant financial transaction, the concerned bank shares details of it with these four credit bureaus. All banks have to mandatory send this information to the credit bureaus as per guidelines by RBI. This is how the Credit Information Companies are always up to date about the monetary habits of the individuals. Any bank can check your credit score by visiting any of these four bureaus as all have almost the same score for you. All these four bureaus are at equal footing in terms of authority.

Apart from the information provided by the banks, these credit bureaus also collect information related to your financial habits from other financial institutions and process the collected data in the form of a Credit report.

Why Should I check my Credit Score?

If you seek credit in the form of loan or credit card, then it is very crucial to keep a watch on your credit score. Tracking your credit score gives you an insight into any downs or about any mistake by the credit bureaus in calculating your credit score. Being aware helps you get your credit score rectified timely.

Do the Four Credit Agencies Compute Scores Differently?

The credit score calculated by all the four agencies is the same however, the procedure to compute it may differ. There is no discrepancy because the banks provide the information of financial transaction to all these bureaus. It is to be noted that even though the CIBIL score is the most sought after and popular, but all the credit score and credit record generated by all these agencies are equally validated and correct.

What Makes Your Credit Score Go Down?

There are several factors which can significantly hamper your credit score. Some of these are:

  1. Having a high outstanding credit card balance.
  2. Not making credit payments timely.
  3. Ignoring loan EMIs and credit card bills.
  4. When credit card payments are not made on time, lenders charge interest on them. These significant charges reduces your credit score.
  5. In the case of non-payments of loan dues, lenders take help from third-party debt collectors to retrieve their money. This goes down badly with your credit score making it go down significantly.
  6. Bankruptcy crashes your credit score badly.
  7. When a credit card with an outstanding balance is closed, the credit limit goes to nil. It is same as maxing out your credit card limit.
  8. Closing old credit cards too have a poor effect on credit score as it reflects credit history getting short.
  9. Applying for multiple loans/credit shows your desperation to take the credit and hence doesn’t go too well with the lenders thereby reducing your credit score.
  10. Only one type of credit account harms the credit score, therefore it is advisable to have a mixed pool of loan products and make a regular payment for all on time.

Sometimes there may be some mistake from credit agencies in computing your credit score, therefore one should monitor it continuously and rectify the error if any to avoid impacting your credit score.

Change in Credit Score - How Often Does it Happen?

Changes in credit score do not happen overnight. So, if you are working towards improving your credit score, then be patient. The credit score is based on the credit report which is prepared by different credit agencies based on the information received from banks and other financial institutions. Lenders report about the credit information every month to these credit agencies. So, changes in your credit score will be reflected with little variation each month with updated information.

How do Big Fluctuations Happen?

The changes in your credit score as reflected every month are incremental and not significant. But, some key factors can make big changes in your credit score. One of them is delinquency which is the lack of making the payment for a significant long time like 30 days. Another important factor is the credit utilisation ratio which is defined as the debt amount opposed to your credit limit. So, with an increase in credit card debt, the credit utilisation ratio will increase too which will thereby decrease your credit score. And if you clear off all your dues in one go, then there will be a temporary increase in your credit score.

How Does the Credit Score Affect You?

The credit score is the deciding factor in some cases for the lenders to decide if they want to offer you the loan or not. Thus, one should always monitor one’s credit score and aim at improving it over time. A good credit score puts you in the position of negotiation with the lender wherein you can avail better deal in terms of rate of interest and loan amount.

Factors affecting credit score

The main factors which affect the credit score are:

  1. Payment History (High Impact)
  2. Lenders are concerned with repayments. Thus, one should always try to pay the EMI or the credit card bill or the scheduled date itself. Payment history greatly impacts your credit score and in case of any delay, the credit score gets down badly. 
  3. Credit Exposure (High Impact)
  4. Credit utilisation ratio or credit exposure is the amount of credit you use as opposed to the credit limit you have. As per experts, one should use one’s credit limit up to 40% only. Low credit utilisation ratio means that you are responsible enough to use the credit while a high credit exposure lowers your credit score.
  5. Age of the Credit (Medium Impact)
  6. Longer credit history is good for the credit score. Lenders study your repayments over a course of time by the age of your credit. Thus it is advised not to close the credit cards as they depict your credit history well.
  7. Total Types of Account (Low Impact)

Maintain your bag of credit history with a mix of secured and unsecured loans. This helps in enhancing your credit score and also shows that you can handle loan products well.

Apart from these, it is also important to avoid multiple and frequent credit inquiries with different lenders as it greatly pulls down your credit score.

Monitoring Your Credit Score

Based on the information provided by the banks and financial institutions, credit agencies update the credit score monthly. It is always advisable to monitor your credit score before you apply for any loan. Doing so will save you from the situation of getting your application rejected courtesy poor credit score. Continuous monitoring also helps in checking and correcting mistakes quickly.


LoansJagat helps you with attaining the loans quickly based on your credit score. It is an excellent platform wherein you can submit your details and compare different lenders who are willing to offer you the loan based on their rate of interest, loan amount and loan tenure. It is thus advisable to check and maintain a good credit score to open various avenues of credit for the future.

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