Knowing Credit Score is Easier Now

A credit score is a 3-digit numerical expression credit bureaus calculate based on people's credit histories. India has four credit bureaus – CIBIL, Equifax, Experian, and CRIF Highmark – that keep records of each Indian citizen’s credit accounts and see how responsibly they handle their credit. If you pay your loan EMIs and credit card bills on time, have a diverse mix of credit accounts in your portfolio, have minimal outstanding credit balances, and have a long history of handling credit responsibly, you will build a good credit score over time.

In the following sections, let’s explore everything you need to know about credit score, how to check credit score, its importance, benefits, factors affecting it, and other crucial details.

Steps to Check Credit Score Online

Those of you thinking, “How do I check my CIBIL score for free?" can follow these steps:

• Log on to the credit bureau’s official website
• Create an account or sign in using your login credentials
• Fill out an online form with details, including your PAN number
• Submit the form
• Receive an email to your registered email ID and verify your identity through the link provided
• Answer a few credit-related questions and get your credit report with a free CIBIL score via email.

Besides this, you can also use a CIBIL score calculator on a lending institution’s website to check the CIBIL score online. However, ensure it is an authentic and trustworthy website with advanced security measures to keep your financial details confidential. Those with questions like “When should I check my credit score?” can check it before applying for credit to measure their current eligibility.

CIBIL/Credit Score Range

When you apply for a loan or credit card, financial institutions like Hero FinCorp check your credit score online to determine your creditworthiness and the risk of default in lending money to you. While the CIBIL score ranges from 300 to 900, anything above 650 is considered good enough to build credibility and attract lucrative loan offers. These are the common credit score ranges worth knowing:

• Bad CIBIL score (550 and below): Individuals below 550 have a damaged credit history with multiple defaults from several lenders on different credit accounts. It might also indicate a bankruptcy that remains on the credit report for up to seven years. If your score is below 550, you have a very low chance of getting loan approval and might need professional help to repair it. 
• Poor CIBIL score (between 550 and 649): A credit score between 550 and 649 places you at a slightly lower level than an average consumer, as the average credit score of Indian consumers, is 715, according to an FY22 report. While you may still earn reasonable interest rates, they will be higher than consumers in the better credit score ranges. Performing a free CIBIL score check and comparing loan offers becomes more important if your score falls in this range. 
• Average CIBIL score (650 and 699): Borrowers with a credit score between 650 and 699 falls in the average category. It indicates that you might have dings on your credit history but with no major delinquencies. Lending institutions might extend credit to you but comparatively at a slightly higher interest rate.
• Good CIBIL score (between 700 and 749): A credit score between 700 and 749 indicates a general sense of responsibility regarding credit and financial management. It means you make most of your payments on time and maintain low credit card balances within your credit account limits.
• Excellent CIBIL score (between 750 and 900): A credit score above 750 indicates consistently responsible behaviour in managing loans. It shows a long history of regular repayments with low balances on credit card bills. If your score falls in this range, you are a prime candidate to qualify for a loan at lower interest rates with favourable terms and conditions. 

Why Check Your Credit Score?

Importance of Regularly Checking CIBIL Score

Everyone suggests checking your CIBIL score regularly. Here are the reasons why doing that is important:

• It lets you know the effects of your actions on your credit score.
• It ensures the accuracy of the information in the credit report and makes it error-free.
• It helps you know your negotiating power while applying for a loan.
• It gives you control over your finances.
• It creates a good impression on prospective lenders.

Benefits of Having a Good CIBIL Score

Since lending institutions check your consumer CIBIL score to assess your creditworthiness. It is essential to have a good credit score before applying for a loan. A high credit score demonstrates responsible credit behaviour, making potential lenders more confident in approving your loan requests. You also get other benefits like:

• Quicker loan approval
• Lower interest rates
• Better repayment terms

Consequences of a Low CIBIL Score

A low CIBIL score indicates high-risk credit behaviour, leading to the following consequences:

• Higher chances of loan rejection
• High-interest rates
• Additional formalities and documentation requirements 
• Smaller loan sanctions
• Stricter action with even a single missed EMI 

Factors Affecting Your Credit Score

Credit bureaus calculate your credit score based on several factors, including the following:

• Payments History: How consistently a credit user pays the loan EMIs and credit card bills significantly impacts the credit score. 
• Credit Utilisation: A credit utilisation ratio above 30-40% projects an individual as a credit-hungry borrower, making them less creditworthy and reducing their credit score.
• Age of Credit Accounts: An individual responsibly handling credit for several years builds a decent credit score over time.
• Credit Mix: A diverse credit mix assures an individual’s ability to handle different types of credit efficiently, eventually increasing their credit rating.
• Number of Credit Enquiries: Those who make several credit enquiries within a short period project themselves in dire need of credit and face financial difficulties, leading to a reduced credit score.

Tips to Improve Your Credit Score

Although it is not an overnight process, here are some practical ways to improve your credit score fast: 

• Clear all outstanding balances on loans and credit cards.
• Check your credit report, identify errors in it, and get them rectified for an instant boost.
• Minimise credit card usage to bring the credit utilisation ratio down.
• Request an increase in your credit limit.

Best Practices for Maintaining a Good CIBIL Score

Once the credit score reaches a decent mark, follow these tips to maintain it there:

• Pay all loan EMIs and credit card bills on time.
• Avoid using too much of your credit limit, and keep the credit utilisation ratio below 30%.
• Check your credit report regularly and know what to expect while applying for a new loan.
• Avoid applying for multiple credit cards and loans within a short period.
• Do not cancel old credit cards, as they assure lending institutions that you pay your bills on time and have a long credit history.
• Maintain a balance between secured and unsecured credit lines.

What are the Benefits of a Good Credit Score?

While most loan companies want to know your CIBIL score while evaluating your credit application, here are a few benefits associated with a high credit score:

• Higher Chances of Approval: A high credit score indicates a clean repayment record, responsible credit behaviour, and minimal risk of default, which typically increases your chances of getting easy and fast loan approval.
• Lower Interest Rates: A high credit score convinces lenders to provide comparatively lower interest rates on various loans.
• Better Access to Pre-approved Loan Offers: A decent credit score increases your chances of getting pre-approved loans, giving you quick access to loans with minimal documentation and faster approvals.
• Easier Access to Premium Facilities: Before approving a loan application, lending institutions check your CIBIL score online to determine your credibility. A high score encourages lenders to give you better loan offers with more premium facilities and services.
• Approval for a Bigger Loan Amount: A high credit score increases the chances of getting approved for a bigger loan sanction. That is because a higher score indicates a lower default risk owing to responsible credit behaviour.
• Longer Loan Tenures: Longer loan terms usually involve a higher risk for the lenders. However, a decent credit score reduces this risk and makes you eligible for a longer tenure. It results in smaller EMIs and easier repayments to better manage the monthly expenses.

What is the Difference Between a Credit Score and a Credit Report?

What are Credit Bureaus?

A credit bureau is a data collection agency that gathers information about an individual's credit history and payment records from various credit accounts and makes it available to creditors. Also known as credit reporting agencies, they work in two ways:

• Firstly, they compile your credit history based on your credit-related behaviour using your PAN number.
• Secondly, they create credit reports using your credit-related information and provide them to creditors to help them measure your creditworthiness. As an individual, you can also request your credit report to understand your credit situation better. 

The Reserve Bank of India has authorised four credit bureaus to collect credit-related activities of Indian citizens:

1. TransUnion Credit Information Bureau (India) Limited (CIBIL):

     CIBIL is one of India's oldest credit information companies. The credit score from CIBIL, also known as the CIBIL score, ranges from 300 and 900.

2. Experian Credit Information Company of India Private Limited:

   Experian is a multi-national credit reporting agency established in India in 2010. The Experian credit score ranges from 300 to 900.

3. Equifax Credit Information Services Private Limited (ECIS):

   Equifax is a joint venture with Equifax Inc. USA and some leading finance companies in India. The Equifax credit score ranges from 300 to 900.

4. CRIF High Mark Credit Information Services:

   Founded in 2007, CRIF High Mark is a full-service credit information agency with credit scores ranging from 300 to 900.

When you apply for a loan, your financial institution will approach a credit bureau to obtain your credit report and evaluate your loan application.