What is a Credit Score & Factors affecting a Credit Score?
A credit score is a numerical expression based on the analysis of a person’s credit history to represent the creditworthiness of that person. So as we understand it is very important or rather essential to have a good credit history. A credit score is a complex formula/number that evaluates a consumer’s creditworthiness and is based on credit history. Lenders use credit scores to evaluate the probability that an individual will repay his or her debts. A person’s credit score ranges from 300 to 900 in India. And it is generally believed that higher the score, the more financially trustworthy a person is considered to be.
A credit score plays a key role in a lender’s decision to offer credit. A credit score of 720 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in them paying less money in interest over the life of the loan. But let me reiterate once again that credit score is never ‘ the deciding factor’. Lenders look at the credit profile of the borrower which is much more broader.
We have four credit bureaus in India: CIBIL, CRIF Highmark, Experian and Equifax. All the four bureaus have their credit scores/reports. The scores may vary marginally primarily because each of the bureaus has different formula to calculate the score.
Once we know what is a score, how much is a good credit score the logical next question is where do I find my credit score and what are the factors affecting my score.
An individual can apply for his/her credit report with the score on all the four bureaus in India. When you apply for your own credit report the bureau generates a fully detailed report with your credit scores.
Factors affecting your Credit Score
The five main factors affecting your credit score:
- Payment history
- Total amount owed
- Length of credit history
- Types of credit
- Number of requests for new credit.
Hence it is very important to understand and focus on each of these factors and work towards building a healthy credit profile.
Ms Aparna Ramachandra
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