Credit score is a three-digit number from 300-900 that showcases your credit risk to lenders. It is determined by your past credit behaviour or “financial reputation” and is used to demonstrate that you are financially responsible. Here, the higher your score, the better your creditworthiness, while a lower score conveys more risks and less reliability.
Notably, your credit score is not fixed and can be improved upon gradually over a period of six months to a year by following responsible fiscal patterns. This includes repaying a personal or secured loan without missing due dates, timely repayment of EMIs, bills, subscriptions, and credit card debt. The goal is to showcase responsible fiscal behaviour through repayment of various financial obligations.
How is your credit score calculated?
Credit score is calculated by four prominent credit bureaus regulated by the central bank of India i.e. RBI — CIBIL, CRIF High Mark, Equifax and Experian, also known as Credit Information Companies (CICs), which gather your credit data and generate a report for banks and other lenders.
Notably, each CIC has their scoring model, and while scores can differ slightly between each, the overall credit health such be consistent no matter which bureau you choose. The following factors are of importance when credit bureaus calculate your scores:
- Frequency of hard inquiries, i.e., applications for new personal loans or credit cards, damages credit scores and complicates future borrowing potential.
How can I access my credit report?
Prominent credit bureaus such as Equifax, Experian, TransUnion CIBIL and CRIF High Mark provide credit reports and calculate your credit score, to determine your creditworthiness and repayment ability for lenders.
As per regulatory requirements, you are entitled to one free credit report each year. You can access this to monitor and review your credit score.
Disclaimer: This story is for educational purposes only. Mint does not promote or encourage taking credit, as it comes with risks such as high interest rates and hidden charges. We advise investors to discuss with certified experts before making any credit or investment decisions.
