October 1, 2024 · 11 mins read
Santosh Kumar
A good credit score is very important in today's world because it plays a vital role in getting loans, credit cards, houses, and, in some circumstances, getting a job. Your credit score is a representation of your creditworthiness. It is an interpretation of how one is likely to pay back borrowed money. Whenever you are applying for a personal loan, home loan or a highly rewarding credit card, a good score can cut down the overall amount of borrowing by giving access to lower interest rates.
But the dull journalistic question comes again. What is a good credit score in India? How do you make sure you belong to this category? The scoring system is not universal and varies by countries and even scoring bureaus. So, what is the best credit score in India? Generally speaking, it ranges within 300-900 (India's CIBIL score). In this ratio, Lenders base this particular score to evaluate the degree of risk they assume when they lend you any money.
In this blog, we’ll talk about what makes a good credit score in India, what credit score ranges to watch out for, how much credit score is good, how one’s credit score is calculated, which credit score is good and how it is possible to improve one’s score and obtain even the most premium credit offers. Learning these factors will enable you to improve your overall financial health and help you achieve your long-term objectives.
In other words, credit scoring begins on a scale of 300 to 900 overall, though there are some slight deviations from one agency to another. For example, in India, the scoring model most people know about is the Cibil score, which is rated from 300 to 900.
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Below, CIBIL elaborated on what constitutes various ranges of creditworthiness.
1. 750-900: Excellent - All borrowers in this category must have the best loan offers, the lowest interest rates on loans, and the most advanced credit cards.
2. 700-749: Good - A good score in this range indicates that most credit products will be available to you but at less desirable rates.
3. 650-699: Fair - Loans or credit cards can be obtained, but the rates and other fees are likely to be rather high.
4. 600-649: Poor - Many people in this category cannot make loans or credit cards without paying extremely high interest rates or providing collateral.
5. Below 600: Bad - Such a person will hardly be able to get any credit with a score of 600 or less within the next few months.
A score within 700-749 is called 'Fair' while anything above 750 is seen as "superb". But if your score falls within a lower scale huddle, there are several tactics to remedy this.
Read More:: Credit Score Vs CIBIL Score
The primary step in determining whether you meet the standards for a good credit score is obtaining a credit report. To check your CIBIL score in India, register on the CIBIL website, which offers one for free or a small fee. Equifax and Experian also provide credit score services.
So here’s the process for doing so:
To become a member of CIBIL and any of its credit bureaus, you need to create an account. To authenticate your identity, you must provide a PAN card, date of birth, address, and a couple of other details.
Once your account is set, you may request a chargeable or non-chargeable credit report. In the report, you will see your current credit score as well as information about the various loans, credit cards, and payments you’ve made.
Again, how did our score compare to the ranges provided earlier? The good news is that if your score hovers between 700 and 749, you are considered to have good credit. If your score goes below the 700 mark, it is advisable that you take measures to upturn it in order to access greater loan deals and interest rates.
Despite your attempts to maintain your financial obligations, several factors may lead to a credit score that is deemed "bad." One must look at the factors contributing to a low credit score to fix the issue.
Delinquent accounts, such as unpaid and overdue credit cards, loans, or accounts for utility bills, negatively impact your credit scoring models. For instance, even one missed payment can reduce your credit score by as much as 100 points.
When the credit utilization exceeds 30% on a regular basis, it may lower your score. For instance, if your limit is ₹1,00,000, you should not regularly consume more than ₹30,000 if you wish to maintain a correct credit profile.
Many applications for credit cards/products in close proximity of time can lead to several hard inquiries, compromising your credit score over time. This is because people do not pay back debts, and creditors focus on the account's worth rather than the person's worth.
A shallow credit history should result in a lower score. However, this slowly improves one's credit score as the duration of economic activities increases.
Suppose you have any defaulted loans, personal bankruptcy, or even settled for an amount that is not up to what you owe. In that case, your credit score will be adversely impacted, making it even more difficult to qualify for loans or credit cards.
Read More:: What Happens If You Default on Your Credit Card
So, which credit score is good? Let's say you are in a wheel and you find that it is lopsided, meaning the credit score does not earn enough rating as “good”. This can be improved to some extent. With some restraint and some extra effort, it’s possible to improve your score over time.
In fact, the best and fastest way to increase your credit score is to keep up with every single payment, be it a credit card, car loan, or mortgage. Set a reminder for the due dates or set up automatic payments where applicable. As time passes, your payment history will improve, restoring your credit score.
Make it a goal to ensure your credit utilization ratio is less than thirty per cent. For instance, if you have a balance of ₹50,000 and a credit limit of ₹1,00,000, then make sure you pay some of the balance so that it is not higher than ₹30,000 or even lower. You may up the ante and ask for a higher credit ceiling to be better positioned in achieving this ratio.
One should try to limit the number of credit applications within a few days. If you are looking for a loan or credit card, apply for one, and after a few months, look for another to eliminate a trend of multiple hard inquiries.
Review every detail of your credit report to ensure that there are no negative factors that may be causing your score to suffer. If you notice any inaccuracies, you are entitled to correct them, and within thirty days, the credit agency is obliged to address the issue.
This applies to credit card accounts as well. The greater the number of years that such accounts are active, the higher the generated scores. Close old accounts only when absolutely compelled to do so since cancelling an account cuts down your credit history timeframe and lowers the score.
When you are unable to obtain approval for a regular credit card, it is wise to apply for a secured credit card. You make a monetary payment in exchange for these cards, but these cards are applicable to credit bureaus and can be quite instrumental in improving your credit score over time.
Although enhancing your credit score is a gradual process, it is possible to achieve some improvement after just a few months of good credit use. In most cases, it takes anywhere from 6 months to a year to appreciate a rolling increase in your score.
1. Minor Issues (e.g., high utilization): You will notice positive changes in your credit score if the cause of the improvement lowered balances or normal payment was the high utilization of credit.
2. Major Issues (e.g., defaults or missed payments): If you are facing situations such as defaults, bankruptcies, or missing multiple payments, it may take you more than a year or years to bring your credit back into the "good" range.
As you increase your credit score goodwill, always remember that patience is a virtue. The best method of attaining steady improvement is by consistently practising good credit discipline over time.
Read More:: RBI Guidelines for Credit Cards
Obtaining a good credit score does not just involve looking to reach certain numerical values; rather, it is about consistency in financial conduct. Financial institutions and credit unions will assess an individual's credit history based on their ability to pay. For that reason, even mild inconveniences such as late payments or maxing out on credit cards can greatly affect one's credit score. Assuming your score does happen to lie within the lower end of the good credit range, it is advisable that one target activities that may be under their control, such as lowering outstanding balances, repaying debts promptly, and refraining from applying for more credit.
One who usually does this tends to find his or her credit report helps him or her identify elements that are bringing his or her score down. Most people are not aware that mistakes such as incorrect account details or balancing credit accounts rather than closing them could be the reason why a credit score goes low. Resolving these mistakes can occasionally raise your score in a very short period.
You must realize that although repairing your credit score takes time, the benefits you will get are commendable. So, how much credit score is good? A good credit score means you have access to better quality financial products, cheaper loans and better loan opportunities, which will save you a lot of money in the long run. Therefore, if, for any reason, you have not made it into the good circle of credit rating, this is the moment to put into action a leap towards achieving this.
Even though your credit score does not qualify as 'good' yet, do not discourage it. With hard work and wise spending habits, you can increase your score over time and eventually acquire even better products in the market.
What exactly is the difference between a CIBIL score and a credit score?
A CIBIL score pertains to a particular system of credit scores provided by Credit Information Bureau India Limited, while a credit score refers to scores from various rating agencies, such as CIBIL, Experian, and Equifax.
How does delinquent payment affect my credit score?
A single missed payment is likely to seriously affect your credit score. If it goes beyond 30 days, for example, it will automatically lower it. The longer the delay, the higher the damage.
Is it possible to get a loan if we have bad credit?
Although bad credit loans are available, borrowers with such credit will face very severe conditions, including very high interest rates. Other lenders will ask for some form of security before granting a loan.
How does cancelling a credit card impact a credit report?
Cancelling a credit card will be detrimental to your credit score because if the card has been held for a long time and has a good credit limit, if it is closed, it will affect your credit utilization ratio.
Do too many credit card applications can negatively affect one’s credit score?
Yes, it's possible that having many credit card applications within a short span hurts a person's credit rating. Such applications leave an imprint on a potential borrower's credit reports as hard inquiries, which decrease their credit scores for a short period and can be flaggers to lenders.
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