Credit Score Basics: What It Is and How to Improve It
Your credit score decides whether you get a loan and at what rate. Learn the five factors behind it, how to get your free annual report, and a plan to raise your score.
Applying for a home loan, a car loan, or even a credit card? The lender will check your credit score. A good score can mean easier approval and lower interest, which saves lakhs over a loan's life.
What is a credit score?
A credit score is a three-digit number that tells lenders how reliably you have repaid borrowed money in the past. In India, scores from the credit bureaus run from 300 to 900. The higher, the better. Many lenders look for around 750 or above as a good score, though each lender sets its own rules.
The four credit information companies in India are TransUnion CIBIL, Equifax, Experian, and CRIF High Mark. Each keeps its own record, so your scores can differ slightly.
The factors that matter most
Payment history
Paying EMIs and card bills on time is the biggest factor. Missed or late payments hurt a lot.
Credit utilisation
How much of your credit card limit you use. A common guideline is to stay below about 30 percent of your limit.
Length of credit history
Older accounts in good standing help.
Credit mix
A healthy mix of secured loans, like a home loan, and unsecured credit, like a card, shows you can manage both.
New enquiries
Many loan or card applications in a short time can lower your score, as each one triggers a "hard enquiry".
How to check it, free
The Reserve Bank of India requires each credit bureau to give you one free full credit report every calendar year. You can request it from each bureau's website. Checking your own report is a "soft enquiry" and does not lower your score.
6 steps to improve your score
Check your report for errors
Wrong accounts, wrong late payments, or someone else's loan can drag you down. Raise a dispute with the bureau.
Never miss a due date
Set auto-pay for at least the minimum amount, and pay the full balance when you can.
Lower your card usage
Pay down balances before the statement date, or ask for a higher limit while spending the same.
Do not close your oldest card without thought
It helps your history length, unless it costs you fees.
Apply for credit only when needed
Space out applications.
Be patient
Improvement takes months of good behaviour, not days.
Common myths
- "Checking my own score hurts it." It does not.
- "I should carry a balance to build credit." No. Paying the full amount each month builds credit without paying interest.
- "Having no loans is good." With no history, lenders have nothing to judge you by.
What most people miss
- Being a guarantor or co-applicant counts. If the main borrower misses payments, your score can suffer too.
- Settling a loan shows on your report. "Settled" is not the same as "closed" and may affect future loans.
