-By Prachi Kumari
What Is a Credit Score?
A credit score is a three-digit number that rates your creditworthiness.It is a prediction of your credit behavior, as how likely you are to pay a loan back on time.Its based on your credit history, which includes information like the number of accounts, total levels of debt, repayment history, and other factors.Companies use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as for tenant screening and insurance.
Credit Score is generated by Credit Information Companies (CICs).You do not have just “one” credit score. You can have different credit Scores depending on the CIC you have used.
What are Credit Information Companies?
A Credit Information Company is an independent institution that collects and maintains consumer’s financial information related to their past and existing loans, credit cards and any other credit products.The companies use their own and different algorithms to calculate and generate your credit score.The credit information is provided to the credit information companies by the lending institutions on a monthly basis, which is used to generate credit scores for individuals and credit reports for companies.
There are four leading Credit Information Companies (CICs) or Credit Bureaus in India, namely:
TransUnion CIBIL
Equifax
Experian
CRIF High Mark
A credit score from any of the 4 credit bureaus is equally valid. However, most banks usually prefer CIBIL score. Credit scores are also called CIBIL scores because they are created by the Credit Information Bureau (India) Limited (CIBIL), one of India's four credit agencies.This score can range from 300 to 900.
Ways to improve Credit Score
Good or high credit score helps the consumer in availing loans at ease, along with instant credit card approvals.Among the efforts that you can take are:
Pay Dues on Time Paying your credit card dues and loan EMIs on time is foremost to maintain a healthy credit score.
Do Not Close Old Accounts Your credit score also depends on the length of your credit history. Hence, it is advisable to not close your old accounts build a solid and lengthy credit history.
Apply for New Credit only when Required If you need credit, do proper research and apply for the loan only when you are certain that your loan application would be approved. Too many hard inquiries in a short period may negatively impact your credit score.
Keep a Check on your CIBIL Report Keeping a check on your CIBIL report on a regular basis to assess errors in your report.If there are any errors, you can raise a dispute for the same which may help you improve your credit score.
Create a Credit History If you do not have any credit history, lenders won’t be able to analyse the risk of lending money to you.Hence, you should opt for a short-term personal loan or a secured/entry-level credit card and build your credit score to become eligible for various loans and credit cards when required in future.
Balance Credit Utilization Ratio credit utilization ratio is the ratio of the credit utilized by you to the overall available credit limit in your name. You can reduce over dependence on credit and also get the credit limit enhanced, if possible.
Diversify your credit mix Having a mix of different types of credit accounts, such as credit cards, loans, and mortgages, can positively impact your credit score.
Conclusion
Credit scores are crucial for financial health, impacting borrowing costs, access to credit, and even employment and insurance opportunities. Understanding the factors that influence credit scores and actively managing credit behaviors can lead to a better score and enhanced financial stability.Improving your credit score is a gradual process that requires consistent, responsible financial behavior. By understanding the factors that influence your score and taking proactive steps to address them, you can enhance your creditworthiness over time. Regularly monitoring your credit report, making timely payments, reducing your debt, and maintaining a healthy mix of credit accounts are all crucial strategies. A strong credit score not only increases your chances of loan approval but can also lead to better interest rates and terms, ultimately saving you money and providing greater financial opportunities. Taking control of your credit today can set the foundation for a more secure and prosperous financial future.
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