Credit Score

What is a Credit Score?

A credit score is a numerical representation of your creditworthiness. It is generally based on your credit history and financial behaviour. It ranges from 300 to 900, with higher scores indicating better credit health. Lenders and financial institutions use it to assess the risk of lending money or extending credit to individuals.

A good credit score can lead to better interest rates and loan terms, whereas a lower score may result in loan rejections or higher interest rates. Monitoring and maintaining a good credit score is essential for financial stability and access to credit products.

Check Your Credit Score For Free on Urban Money

Given below are the three easy steps to check your credit score for free by entering minimal information.

• Step 1: Visit our credit score page.
• Step 2: On this page, enter details about yourself, like Name, Mobile Number, and Email Address. This will trigger an OTP being sent by Experian to the phone number you entered.
• Step 3: Verify the OTP, and your credit report will be displayed on the screen. A copy of the same will be sent to the registered email address simultaneously by Experian. You also have the option to download the report in PDF format.
• A healthy credit score can also result in you getting better offers and rewards. Applicants with a good credit score can get lucrative promotional offers and rewards on their approved credit cards. Further, elite credit card applicants can also get access to an array of exclusive promotions and events.

However, if you are unable to obtain your credit report through this method, you will be required to enter some additional details like Permanent Account Number, City, and Gender. The credit report will be displayed to you once all these details are verified. You will also get the same on your email.

But, in case you are still unable to view your credit report, you will be required to fill in a Q&A form deftly curated by Experian to verify your authenticity. You should be able to view your detailed credit report by submitting this form.

How to Increase Credit Score?

To improve your credit score effectively, consider these detailed strategies:

• Paying your bills on time is crucial. Late payments can significantly impact your credit score. Consider setting up automatic payments or reminders for due dates.
• Aim to use less than 30% of your total available credit across all cards. Paying down balances and keeping them low relative to your credit limits shows lenders you manage credit responsibly.
• The age of your credit history matters. Older accounts contribute to a longer credit history, positively affecting your score. Think twice before closing old accounts, which could shorten your credit history and increase your utilisation ratio.
• Having a mix of different types of credit accounts, such as revolving credit (credit cards) and instalment loans (auto loans, personal loans, mortgages), can be beneficial.
• Every time you apply for credit, a hard inquiry is made, which can temporarily lower your score. Apply for new credit sparingly and only as needed to avoid too many hard inquiries quickly..
• Regularly review your credit reports for any inaccuracies or fraudulent activities. If you find errors, dispute them with the credit bureau and the lender to get them corrected.
• Keep an eye on your credit score and report through services offered by credit bureaus or third-party apps. Monitoring can help you understand the impact of your financial actions on your score and alert you to potential identity theft.
• If you’re building credit from scratch or repairing poor credit, a secured credit card might be a good option. These cards require a cash deposit that serves as your credit limit. Use it like a regular credit card and pay the balance monthly to build a positive payment history.
• If you’re overwhelmed by debt or unsure how to improve your credit, consider consulting a credit counseling service. They can provide personalized advice and may help you set up a debt management plan.

What is Known as a Good Credit Score?

According to the FICO scoring model, A good credit score is considered in the range of 670 to 739. This range indicates to lenders that the borrower is a dependable applicant with a solid track record of managing credit responsibly. Scores within this range are often associated with higher approval rates for loans and credit, more favorable interest rates, and better credit terms.

Benefits of a Good Credit Score

Having a good credit score is vital to holding a key that unlocks numerous financial opportunities. Here are the detailed benefits:

• A good credit score can significantly reduce the interest rates you’re charged on loans and credit cards. Lenders view you as a lower-risk borrower, which can save you a substantial amount of money over time.
• With a good credit score, your applications for loans and credit cards are more likely to be approved. Lenders trust your ability to repay, making them more willing to extend your credit.
• A strong credit score qualifies you for credit cards with better rewards, cashback offers, travel perks, and lower APRs. These benefits can make managing expenses and planning vacations more rewarding.
• Your credit score directly influences your borrowing limit. A higher score can lead to higher credit limits, giving you more financial flexibility.
• Landlords often check credit scores during the application process. A good score can make it easier to secure the rental you want without needing a larger security deposit.
• Many insurance companies use credit scores to determine premiums. A higher score can lead to lower premiums for auto and homeowners insurance.
• A good credit score gives you the leverage to negotiate lower interest rates on loans and credit card debt. You’re in a stronger position to request better terms.
• Utility companies sometimes waive security deposits for customers with good credit scores. This can save upfront costs when setting up electricity, gas, or internet services.
• Beyond tangible benefits, a good credit score provides financial security. You have the assurance that you can access credit during emergencies or take advantage of financial opportunities as they arise.

Credit vs CIBIL Score

Table below compares the general concept of a credit score with the specific CIBIL score, highlighting their key differences and similarities.

Aspect	Credit Score	CIBIL Score
Definition	A numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual.	A specific type of credit score is provided by TransUnion CIBIL, one of the four credit bureaus in India.
Range	Generally ranges from 300 to 850, depending on the credit bureau.	Ranges from 300 to 900.
Credit Bureaus	Can be generated by different credit bureaus such as Equifax, Experian, and TransUnion.	Exclusively generated by TransUnion CIBIL.
Usage	Used by lenders globally to make lending decisions.	Primarily used by lenders in India to evaluate loan or credit card applications.
Factors Considered	Payment history, credit utilization, length of credit history, new credit, and types of credit in use.	Similar factors as any credit score, including payment history, credit mix, loan amount owed, and new credit.
Impact on Loan Applications	A higher score generally means better chances of loan approval and favourable interest rates.	Like a generic credit score, a higher CIBIL score improves loan approval chances and can lead to better interest rates.

Range of Credit Score

This range helps lenders assess the lending risk and decide on loan approvals and interest rates.

Score Range	Credit Quality	Impact
750 – 900	Excellent	Eligible for best interest rates and loan terms
700 – 749	Good	Favorable loan terms
650 – 699	Fair	May face higher interest rates
550 – 649	Poor	Higher interest rates, limited credit options
Below 550	Very Poor	May not qualify for most credit

Check Credit Score Online Step-by-step on the Offical Website

Step 1: Go to the official website https://www.cibil.com/.

Step 2: Find “Get Free Cibil Score & Report”: on the homepage.

Step 3: Fill in your personal information.

Step 4: OTP sent to your phone or email then enter OTP here

Step 5: Credit score will be displayed.

How is Credit Score Calculated?

To calculate a credit score, credit bureaus analyze your financial habits using these key factors:

• Payment History (35%): This is the most significant factor affecting your credit score. Lenders want to know you’re reliable, so they look at how promptly you’ve made payments on loans and credit cards. Late payments, defaults, bankruptcies, and foreclosures have negative impacts.
• Credit Utilization Ratio (30%): This measures how much of your available credit you use. It’s calculated by dividing your total outstanding credit card balances by your total credit limits. High utilization can indicate that you’re over-reliant on credit, which can lower your score. It’s recommended to keep this ratio under 30%.
• Length of Credit History (15%): Older credit accounts are beneficial because they provide a longer track record of your financial behaviour. This component considers the age of your oldest account, your newest account, and the average age of all your accounts.
• Types of Credit Used (10%): A mix of different types of credit (e.g., mortgage, car loans, credit cards) can positively affect your score. It shows you can handle various types of financial responsibilities.
• New Credit (10%): This refers to recently opened credit accounts and inquiries from lenders (hard inquiries) when you apply for new credit. Opening many new accounts in a short period can be seen as risky behaviour and may lower your score. Each hard inquiry might slightly reduce your score, but the impact diminishes over time.

Factors That Affect Your Credit Score

Understanding what can drag down your credit score is crucial for maintaining financial health. Here are the key factors that can lower your score:

• Timeliness in paying your bills is critical. Late or missed payments on loans and credit cards are red flags to lenders and can significantly hurt your score.
• Using a large portion of your available credit can signal financial distress. Experts recommend keeping your credit utilization under 30% to avoid negatively impacting your score.
• Applying for several credit accounts within a short period can lower your score. Each application typically involves a hard inquiry, which can slightly decrease your score.
• Consistently carrying high balances, can indicate over-reliance on credit and lower your score.
• Failing to repay loans as agreed upon can lead to defaults or settlements, severely damaging your credit score.
• A short credit history provides less evidence of your ability to manage debt responsibly, which can lower your score.
• Closing your oldest accounts can shorten your credit history length, potentially lowering your score.
• A mix of credit types can positively affect your score. Having only one type may not showcase your credit management skills effectively.
• Sometimes, errors in credit reports can unjustly lower your score. Regularly reviewing your credit report for accuracy is essential

Importance of Upholding a Strong Credit Score

Maintaining a strong credit score is crucial for several reasons:

• Primarily, it influences your ability to secure loans and credit cards, as well as the terms and interest rates offered by lenders.
• A high credit score signals to lenders that you’re a low-risk borrower, which can lead to more favourable loan terms.
• In some cases, your credit score can affect your insurance premiums, which involve money management, rental agreements, and even employment opportunities.

Comparison: Credit Score, Credit Rating, and Credit Report

Confused between the three? Well, here is a table to answer all your questions:

Feature	Credit Score	Credit Rating	Credit Report
Definition	A numerical expression based on credit history, typically ranging from 300-900, indicating the creditworthiness of an individual.	An evaluation of a borrower’s credit risk, often assigned to businesses and governments, represented by letters (AAA, BB, etc.).	A detailed record of an individual’s or company’s credit history, including loans, repayment track record, and credit accounts.
Purpose	To help lenders quickly assess an individual’s likelihood of repaying borrowed money.	To give investors insight into the creditworthiness and risk level associated with investing in a company’s debt or a government’s bonds.	To provide a comprehensive overview of an individual’s or company’s credit history for detailed analysis by lenders.
Provided By	Credit bureaus such as TransUnion CIBIL, Experian, Equifax, and CRIF High Mark in India.	Credit rating agencies like S&P, Moody’s, and Fitch.	Credit bureaus and credit information companies.
Users	Banks, financial institutions, and individuals checking their own credit health.	Investors, financial institutions, and analysts are looking at the credit risk of entities issuing debt.	Individuals and lenders review credit history for loan eligibility, creditworthiness, and financial stability.
Representation	Numerical score (e.g., 750)	Alphabetical or symbolic ratings (e.g., ‘AAA’ for highest creditworthiness)	Comprehensive report detailing credit accounts, payment history, inquiries, and other credit-related information.
Frequency of Update	Regular updates based on new credit information and activities.	Ratings can change based on the entity’s financial condition and market conditions.	Updated regularly as creditors report new credit information.
Impact	Direct impact on loan and credit card approval and interest rates offered.	Influences the interest rates a company or government pays on its bonds and its ability to raise funds.	Used by lenders to decide on loan approval and to identify specific areas of financial behaviour needing improvement.

Factors Leading to a Low Credit Score

A low credit score can hinder your ability to secure loans and enjoy favourable interest rates. Here are several key reasons why your credit score might be low:

• Payment history is a critical factor. Late or missed payments on loans and credit cards negatively affect your score.
• Using a large portion of your available credit signals high reliance on credit, which can lower your score. It’s advisable to keep the credit utilization ratio under 30%.
• A short credit history provides limited information on your borrowing behaviour, making it harder for credit bureaus to assign a higher score.
• Applying for several credit lines within a short period can result in multiple hard inquiries, indicating you might be taking on more debt.
• Accounts in collections, defaults, or bankruptcies have a severe negative impact on your credit score.
• Sometimes, errors or inaccuracies on credit reports, like incorrect account details or fraudulent activities, can unjustly lower your score.
• Carrying high debt levels, especially on revolving credit like credit cards, can decrease your score.

Impact of Credit Score Inquiries

Checking your own credit score, known as a “soft inquiry,” does not impact your credit score. Soft inquiries occur when you review your credit report or when a lender pre-approves you for an offer without your initiation. These inquiries are unrelated to a direct application for new credit and, therefore, do not affect your score.

In contrast, “hard inquiries” happen when you apply for credit, such as a loan or credit card, and the lender reviews your credit report as part of the application process. Hard inquiries can slightly lower your credit score, indicating you may seek new credit. However, the impact is usually minor and temporary, lasting a few months.

Influence of Payment History on Your Credit Score

Your payment history is the most significant factor influencing your credit score. It accounts for a substantial portion of your score’s calculation. This history reflects whether you’ve made your credit account payments on time. Late or missed payments can significantly harm your credit score, indicating risk to potential lenders. On the other hand, making payments on time can positively affect your credit score. This history gives lenders confidence in your ability to manage and repay borrowed funds.

Credit Mix and Its Impact on Your Score

Having a variety of credit types can positively impact your credit score. It shows your ability to manage different forms of credit responsibly. Credit scoring models, such as those used by FICO and VantageScore, consider your credit mix a factor. This mix might include credit cards, retail accounts, instalment loans, finance company accounts, and mortgages.

However, taking on credit you can manage effectively is important only. Making timely payments across all your accounts is key; mismanaging even one type can negatively affect your credit score.

What is the Limit to Check Your Credit Score in a Month?

There is no limit to how many times you can check your credit score. Checking your credit score is considered a soft inquiry, which does not affect your credit score. However, using reputable sources when checking your score is important to ensure your information is secure and accurate. Many credit bureaus, banks, and financial institutions offer free access to your credit score monthly. It’s a good practice to monitor your credit score regularly to detect any inaccuracies or fraudulent activity early on.

Myth Busters About Credit Scores

Understanding the myths and their truths below can help you navigate your credit more effectively:

Myth 1: Checking your credit score will lower it.

Truth: Checking your own credit score is considered a soft inquiry and does not impact your credit score. Monitoring your credit score to understand your financial standing regularly is a good practice.

Myth 2: You must carry a credit card balance to build a good credit score.

Truth: Carrying a balance is unnecessary to build a good credit score. Paying off your balance in full each month can positively impact your credit score by showing responsible credit management.

Myth 3: Closing old credit cards will improve your credit score.

Truth: Closing old credit accounts can actually harm your credit score. It reduces your overall available credit and can increase your credit utilization ratio, negatively affecting your score.

Myth 4: All debts are bad for your credit score.

Truth: Not all debt is bad. A mix of different types of credit, such as revolving credit (credit cards) and instalment loans (auto, personal, mortgage). Managed well can improve your credit score by showing your ability to handle diverse types of credit.

Myth 5: Making more money will increase your credit score.

Truth: Your income does not directly affect your credit score. Credit scores are calculated based on your credit behaviour, such as payment history, credit utilization, and length of credit history, not your income level.

Myth 6: You only have one credit score.

Truth: You have multiple credit scores. Different credit reporting agencies use different scoring models. Lenders may use various scores from different sources to assess your creditworthiness.

Myth 7: Paying off a negative record will remove it from your credit report.

Truth: Paying off a debt in the collection does not automatically remove it from your credit report. Negative records can remain on your report for up to 7 years, although their impact on your score diminishes over time.

Myth 8: Co-signing doesn’t make you responsible for the debt.

Truth: Co-signing a loan makes you legally responsible for the debt. If the primary borrower fails to make payments, it can negatively affect your credit score.

Trusted Credit Information Companies in India

These entities, more commonly referred to as credit bureaus, are the backbone of credit scoring systems in India. They play a pivotal role in shaping the credit landscape. Here are the credit bureaus you can rely on for checking your Credit:

TransUnion CIBIL

Established: 2000

TransUnion CIBIL is the first Credit Information Company in India and has the largest consumer credit information database. It provides credit scores and reports to individuals and lenders, aiding in informed lending decisions. The Credit score numerically represents an individual’s creditworthiness, ranging from 300 to 900.

Equifax

Established: 2010 in India

Equifax is a global data, analytics, and technology company that offers comprehensive credit reports and risk assessment tools. In India, it provides services to both individuals and businesses.

Experian

Established: 2010 in India

Experian is another global leader in consumer and business credit reporting and marketing services. It offers detailed credit reports and scores that reflect an individual’s credit behavior and history.

CRIF High Mark

Established: 2007 in India

CRIF High Mark is known for its comprehensive database covering retail, agriculture, and SME sectors. It provides credit information solutions across the entire customer lifecycle, from acquisition to portfolio management to collections.