What is Credit Score?

A credit score is calculated using several factors such as your payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. Your payment history, which includes information on whether you have made timely payments, is one of the most important factors in determining your credit score. Your credit utilization, which is the amount of credit you are using compared to the amount you have available, is also a significant factor. A higher credit utilization can indicate a higher level of risk and a lower credit score.

Also Check: Experian Credit Score

Credit score is important because it:

• Determines loan approval: Lenders use credit scores to determine the risk of lending money to an individual. A good credit score increases the chances of loan approval and can result in better loan terms and interest rates.
• Indicates financial health: A good credit score is a sign of good financial health and can indicate that an individual is responsible with credit and payments. On the other hand, a low credit score can indicate financial struggles and poor credit management.
• Builds financial credibility: A good credit score reflects an individual's financial credibility and can increase the chances of obtaining loans and credit in the future.
• Helps with financial planning: By regularly checking and monitoring your credit score, you can identify any errors and make improvements that can lead to better financial health and opportunities.

Credit scores are usually calculated using a proprietary formula by credit bureaus. However, some of the factors that are commonly used to calculate credit scores include payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries.

You can check credit score for free from credit bureaus such as CRIF, Equifax, and Experian. You can also check your credit score from websites like CIBIL which is widely accepted across Indian banks or alternatively you can also check your credit score by contacting your bank or financial institution.

Here are some tips to improve your credit score:

Make payments on time: 

Late or missed payments can have a significant impact on your credit score. Make sure to make all payments on time and avoid missed or late payments.

Keep credit card balances low: 

High credit card balances can indicate financial stress and negatively impact your credit score. Keep your credit card balances low to maintain a healthy credit score.

Reduce debt: 

High levels of debt can have a negative impact on your credit score. Reduce your debt by paying off outstanding balances or by consolidating debt into one manageable loan.

Limit new credit applications: 

Every time you apply for credit, it creates a hard inquiry on your credit report, which can temporarily lower your credit score. Limit new credit applications to improve your credit score.

Dispute errors: 

Review your credit report regularly to ensure accuracy. Dispute any errors you find with the credit bureau to improve your credit score.

Keep old credit accounts open: 

Maintaining old credit accounts can show a long credit history, which can improve your credit score.

Seek professional help: 

If you are having trouble improving your credit score, seek the help of a financial advisor or credit counselor. They can provide personalized advice and a plan to improve your credit score.

In India, credit scores are provided by credit bureaus such as CIBIL, CRIF, Equifax, and Experian. These bureaus collect credit information from various sources and use it to calculate credit scores for individuals. The credit score provided by these bureaus is used by banks, financial institutions, and lenders to assess the risk of lending you money or approving your loan application. Apart from these there are also 3rd party marketplaces and loan comparison websites that can give you free credit score and free credit report.