A credit score represents an individual’s creditworthiness based on their credit history. Financial institutions use credit scores to determine a person’s eligibility for loans, credit cards, and other financial products. The higher the credit score, the better your chances of getting your loan approved with favourable terms and conditions.
In India, credit scores are often referred to as CIBIL scores, as most lenders rely on scores generated using CIBIL’s database and algorithm. So, what is a good credit score range in India? What is a good CIBIL score range? The blog has answers to all these questions.
CIBIL Score Ranges
Score
Category
Significance
Below 300
Poor
Indicates a high risk of default, making it difficult to secure credit
300 – 550
Very low
Reflects significant credit issues, limiting access to loans or favourable terms
551 – 620
Low
Shows a history of missed payments or debt, resulting in higher borrowing costs
621 – 700
Fair
Suggests moderate creditworthiness, with room for improvement
701 – 749
Good
Indicates responsible credit use, often qualifying for favourable loan rates
750 – 900
Excellent
Shows strong credit management, resulting in the best lending terms and lower interest rates
Credit Score Ranges
Between 300 to 850, let us see what a decent credit score range in India is:
– Exceptional credit score (800-850): Reflects no late payments or minimal credit card balances; lenders offer loans with better terms, interest rates, and repayment options due to low-risk nature.
– Very good credit score (740-799): Indicates responsible financial management and minimal debt; lenders approve loans with favourable terms and lower interest rates.
– Good credit score (670-739): Shows a decent credit history; lenders approve loans with standard terms but may not offer the best interest rates or flexible repayment options.
– Fair credit score (580-669): Indicates a history of missed payments; loans may be approved at higher interest rates and with less favourable terms.
– Poor credit score (Under 580): Reflects many missed payments and defaults; loans are hard to get, and if approved, they come with high interest rates and strict repayment terms.
– No credit: Individuals with no credit history can still apply for loans but must establish responsible credit use to build a credit score over time.
Basics of CIBIL Score
A credit score is a three-digit number in the 300 to 850 range used to assess a person’s creditworthiness. Lenders use this score to determine the risk of extending a loan to an applicant. Lenders calculate credit scores using your credit history. Here are five factors, along with the percentage of the score they make up for:
– Payment history (35%) shows you have paid your bills on time.
– Accounts owed (30%) are the credit and loans you are availing.
– Credit history’s length (15%) shows how long you have been using credit.
– Credit mix (10%) is the types of credit (home loan, vehicle loan, credit cards) you have availed.
– New credit inquiries (10%) show the frequency of your credit inquiries.
What is a Good Credit Score?
A good credit score typically falls within the range of 670 to 739. It reflects a strong history of responsible credit management, with few missed payments and minimal debt. Lenders often view individuals with good credit scores as low-risk borrowers, which increases their chances of loan approval.
While this score may not guarantee the best interest rates or flexible repayment terms, it still provides access to a wide range of loan options.
How are Credit Scores Calculated?
Credit scores are calculated based on various factors in the credit report, including your payment history, credit utilisation, credit mix, and the length of your credit history. These elements help lenders assess how responsibly you manage credit. The payment history is the most significant factor as a history of late payments, defaults, or bankruptcies can significantly lower your score.
However, different scoring models may prioritise these factors differently. For example, one model might give more importance to your payment history, while another might focus on the types of credit accounts you have. Additionally, the credit reporting agency can affect your score, as not all lenders report to all three major bureaus—Equifax, TransUnion, and Experian.
How to Improve CIBIL Score
Follow these tips to improve your CIBIL score:
– Pay bills on time to build a positive payment history.
– Keep credit card balances low to maintain a low credit utilisation rate.
– Regularly check your credit report for errors and dispute any inaccuracies.
– Avoid opening multiple new credit accounts in a short period.
– Reduce outstanding debt by making larger payments on loans or credit cards.
– Keep old accounts open to maintain a long credit history.
– Diversify your credit mix with different types of credit accounts.
– Avoid missing payments by setting up automated bill payments.
– Don’t use more than 30% of your available credit limit.
Smart Tips to improve your CIBIL Score
Here are some steps to improve your CIBIL score:
Step 1: Pay bills on time
Always ensure that your credit card payments, loan EMIs, and utility bills are paid on time. Timely payments are crucial for building a positive credit history.
Step 2: Reduce credit utilisation
Keep your credit utilisation ratio below 30%. This shows lenders that you are not overly reliant on credit, which can positively impact your score.
Step 3: Avoid multiple credit card applications
Each credit application leads to a hard inquiry, which can lower your score. Apply for credit only when necessary.
Step 4: Regularly check your credit report
Review your credit report for errors or discrepancies. If you find any mistakes, dispute them with the credit bureau to keep your score accurate.
Step 5: Pay more than the minimum payment
Always try to pay more than the minimum payment on your credit cards. This reduces your outstanding balance and helps improve your score.
Your credit scores can vary because different scoring models and credit reporting agencies prioritise different factors. Moreover, not all lenders report to every credit bureau, leading to variations in scores.
What's the highest possible credit score?
The highest possible credit score is 850. However, a score of 800 or above is considered excellent and sufficient to qualify for the best loan terms and interest rates.
Is 750 a good credit score?
Yes, a credit score of 750 is considered very good. It indicates responsible credit behaviour, making it easier to get approved for loans with favourable terms and lower interest rates.
How to improve CIBIL score?
You can improve your CIBIL score by paying bills on time, reducing outstanding debt, reducing your credit utilisation, and maintaining a healthy credit mix.
09 December 2024
5 mins read
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