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​Credit Score – What Does The 3-Digit Signify?

A credit score is a 3-digit number that assesses your credibility and is a crucial aspect of your financial profile. It is utilized to decide a few of the crucial aspects of your financial profile. It is also used to decide some of your crucial financial parameters in life, like whether you will be able to fund a car, qualify for a home loan or be capable of availing a credit card. A strong credit score ensures a simpler approval process at a lower rate of interest, higher credit card limit and other benefits that will just endow you with an enhanced financial life and better lifestyle. 

A strong credit score ranges anywhere between 300 and 900, which is decided by credit rating agencies. Any credit score less than 750 is looked upon as poor by the credit bureau in India, which generally is an outcome of irresponsible financial behaviour. Listed below are a few of the key measures to make sure a good credit score – 

∙       Credit score plays an important role in the credit card and loan approval process. It is the initial screening criterion applied by financial institutions and banks when reviewing your credit application. 

∙       It assists in evaluating the potential risk that can come up from lending funds to you. Thus, the credit score is utilized to lower the probable chances of witnessing any losses on account of any bad debt. 

∙       Your credit report summarizes your past repayment history and credit card balances borrowed from all financial institutions and banks. Depending upon your credit history, your credit score is formed. 

∙       In short, your credit score is a statistical number that assesses or shows your credibility for applying for a credit card or loan. 

∙       Credit score now in India has started to get great attention. It is because your score comes across as a key component that shows your likelihood or chances of availing of a big-ticket loan. 

∙       CRIF High Mark, CIBIL, Experian and Equifax are the 4-credit bureau that generates credit scores post examining your credit report. Note that CIBIL is one of the premier agencies which compute credit scores called CIBIL scores. 

What is a CIBIL score?

∙       CIBIL score is a three-digit numeric summary of your past credit history. Your CIBIL is derived using the details found in the Enquiries and Account sections of your CIBIL report. 

∙       This includes your credit cards or loan accounts and their payment status and outstanding amounts with due dates. 

∙       Credit score shows your credibility, depending on your repayment history and borrowing as shared by the lenders. Your credit score ranges anywhere between 300 and 900. Higher your credit score, i.e., the closer it is to 900, the stronger your profile will be.

What do these three digits denote? How can you interpret your credit score?

CIBIL score over 300 but below 600 – You are looked upon as a risky credit individual by lenders. Your loan or credit card application might not be processed. 

CIBIL score over 600 but less than 750 – This is an intermediate-range wherein the lender might approve your credit application. However, lenders might consider your thorough financial health and various other credit risk parameters for deciding your true eligibility. These include your employment stability, other income sources, loan security and various other similar criteria. 

CIBIL over 750 – This range shows you have good credibility. The loan approval or approval for a credit card may not be an issue. A high credit score signifies you have a high chance of negotiating to get a lower rate of interest from your lender. A higher CIBIL score, which is closer to 900, also shows you have a strong credit profile. 

What makes up your credit score?

There are 4 major factors that affect your CIBIL score – 

∙       Payment history – Making a late payment or EMI defaulting holds a negative impact on your credit score. 

∙       Credit mix – Holding a balanced credit mix between unsecured and secured loans is most likely to have a highly positive impact on your credit score. 

∙       Multiple credit enquiries – Making a lot of loan enquiries might have a negative impact on your credit score because this shows that your credit burden might rise in the future.

∙       High credit utilization ratio – A high credit utilization ratio (CUR) shows a rising debt burden over time, which might have a negative impact on your credit score. 

What are the factors that impact your credit score?

There are four major factors that impact your credit score – 

∙       Payment history – Missing your payment or making late payments lowers your credit score. There are different reasons that determine how much a score takes a dip based on how late you make the repayment. 

∙       High credit utilization ratio – Having a higher credit card utilization ratio shows that you have a high repayment burden, and this impacts your credit score negatively. 

∙       Making enquiries – Enquiries are made when an individual applies for a credit card or loan. Multiple enquiries show a rise in debt as well as a hunger for credit. Banks deal with caution in these cases as it even dips your score. 

∙       Credit mix – A good credit mix of secured and unsecured loans is a great way to have a positive impact on credit score. 

What does your credit report consist of?

Your credit report consists of the listed – 

Credit score – 

The most crucial 3-digit number shows your financial health. 

Personal info – 

This contains your gender, name, date of birth with PAN, voter ID info, passport number, Aadhaar card number and driver’s license number. 

Contact info – 

Contact info like telephone and mobile number, mail address, and address shared by lender also appear. Whether a specific address is residential, official, permanent, or temporary is also mentioned here. 

Employment info –

On opening a credit account, may it be a credit card or loan, the lender keeps a close watch on your income and occupation. Information disclosed at that point in time may appear here. 

Inquiry info – 

Whenever a credit card or loan application is made, the lender makes an inquiry. Information relating to this appears here along with the lender’s name, credit type, application date and loan or credit amount applied for. 


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