It is your credit score. You must know it.

24-Dec-2016 written by : FSI-Team

Not for nothing is it believed that a credit score can make or break your financial health in today's times. Let us take a simple example wherein two people with a similar requirement for a home loan make an application, but only one of them is sanctioned the loan they had asked for, while the other individual's loan application is downright rejected.

All things being more or less equal, it comes down to the credit score, and the person with a higher score of the two is the one to get the loan. Let us then take a closer look at what the credit score is all about, and what you can do to ensure you maintain a good or healthy score.

What is a credit score?

Simply put, it is an overview of your credit health, and is a number ranging between 300 and 900, derived from your credit information report. This information pertains to your credit history (not just past accounts but even those that are ongoing) and how well it has been managed. To a lender, it indicates an individual's creditworthiness and is the first piece of data that is viewed prior to extending fresh credit.

What goes into a credit score?

While there are several factors that constitute a credit score, predominant among these are:

  • Payment history – This refers to whether all payments on existing outstanding accounts have been made on time, either on or before the due date. Delayed or skipped payments adversely impact your score.
  • Length of credit history – This parameter reflects as to how long the accounts have been open for.
  • Amounts owed – This refers to the outstanding amount(s) due currently across all loans and credit cards.
  • Credit mix – A lender views more favourably a borrower who can handle a healthy mix of credit, i.e. both secured and unsecured loan products such as home loans and personal loans.
  • Number of hits, or enquiries – Every time you apply for credit, your score dips on account of the enquiry made on your report.

Where do you get a credit score from?

It is a credit bureau that generates a score, and you can choose to avail of one from any of the bureaus in the country. There are four at present, namely CIBIL, Equifax, Experian and CRIF High Mark. While you may find that the score itself may vary a little, know that the algorithm that goes into generating a score remains more or less the same, and these scores give you a good estimate of your creditworthiness.

Currently, none of the bureaus offer free reports or scores, but that is set to change in the upcoming year, with it being made mandatory for bureaus to issue one free CIBIL report (plus score) annually.

So what do you do until then? It's pretty simple. Websites such as offer you a chance to get a look at your credit score, free of cost. All you have to do, is to log on to their website and upon online submission of some basic information, your score will be sent to you via email.

How does a credit score help me?

When you apply for credit as discussed, chances are that your loan application will not just go through, but you will also be able to avail of a loan at the best possible interest rates and other terms. This not only provides you the funds when you need them the most, but helps you save money in the long run. Hence it becomes important to not just know your score, but also maintain it such that it remains consistently good over a period of time. Do keep in mind that a score is not read in isolation and other factors too are taken into account when a lender decides to sanction a loan, but a higher score definitely does put you at an advantage.

That said, there are loans for low scores available as well, but they do bring up your cost overall, sometimes significantly.

Of course, if your score is currently lower than you'd like it to be, there is no reason to fret. Given time and financial discipline, you can work towards improving your score.

The bottom line

It is prudent therefore to keep a close track on your score so that when you require a loan you are able to avail one at the best possible terms. Check then, for your free credit report in India and know all about your credit score.



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