A credit score is basically a numerical expression resulting from the level analysis of an individual’s credit files. It signifies the creditworthiness of the respective individual. In short, a credit score is a measure of an individual’s capability to pay back the debt.

The credit score is more useful to the lenders like banks, credit card issuing companies and various other loan issuing institutions/ organizations. On the basis of the credit score, such lenders can easily evaluate the potential risk involved by lending a sum of money to the customers which can help the lenders to mitigate losses.

In the present article, we will understand the credit score and credit information companies; CIBIL credit score; credit score calculation and relevant FAQs.

Understanding credit score and credit information companies-

As stated above, the credit score is an indicator that indicates the creditworthiness/ ability to repay the debt of the individuals. Based on various aspects like credit history; repayment capacity; credit inquiry etc. credit score is worked out/ calculated by credit information companies.

Everything you need to know about credit score

Notably, the Reserve Bank of India (RBI) has licensed four credit information companies. Amongst them, an older credit information company is ‘Credit Information Bureau (India) Limited’, shortly known as CIBIL, which is functioning since January 2001. Names of all the four licensed credit information companies are summarized hereunder-

1. CIBIL;

2. Experian;

3. Equifax; and

4. CRIF high mark.

A credit score is a three-digit number ranging between 300 and 900. Different credit score and their probable significance is explained in the below table-

Credit Score range Significance of the same
300 to 549 This is considered a bad credit score. It signifies that the individual has defaulted in payments and have some unpaid dues too.
550 to 649 This is considered an average credit score. It signifies that the individual has delayed in making payments.
650 to 749 This is considered an above average credit score. It signifies that the individuals at this score can probably get the loans but need to negotiate a deal with the lenders.
750 to 900 This is considered a good/ excellent credit score. It signifies that the individuals having this score can easily get loans/ credit cards. They can also negotiate with the lenders to offer loans/ credit card at a lower interest rates.

CIBIL Credit Score-

All the above four noted credit information companies have developed their own individual credit scores. However, the CIBIL credit score is one of the most popular amongst them.  A CIBIL credit score is built up usually between 18 to 36 months. Some of the facts of CIBIL credit score are summarized hereunder-

  • CIBIL credit score ranges between 300 and 900.
  • A credit score of 900 is considered as the best score.
  • Individual’s having no credit history will be given a credit score of -1.
  • Individual’s having a credit history of less than 6 months will be given a credit score of 0.

Understanding credit score calculation-

The working of the credit score goes in the following manner-

  • An individual makes transactions that are relevant to determine the credit score;
  • Such transaction information of the individual is provided by the banks/ lenders to the credit information companies;
  • On the basis of the transaction information, credit information companies work outs the credit score of the individual;
  • As and when the bank/ lender is in need to check the credit score of the individual, they need to approach credit information companies for the same;
  • On being approached, the credit information companies will gather more information and formulate the credit report, covering the credit score, of the individual.

FAQs on credit score-

Q.1 What credit score is good?

Ans. A credit score of 700 and above is generally considered as good.

Q.2 How credit score increase?

Ans. Credit score can be increased by taking the following steps-

  • Paying dues on time;
  • Maintaining a healthy mix of credit;
  • Reviewing of credit history on regular basis;
  • Settling outstanding bills, if any;
  • Maintain old accounts/ credit cards; etc.

Q.3 How credit score is calculated?

Ans. The credit score is calculated by the credit information companies on the basis of various information like credit history; repayment capacity; credit utilization; multiple inquires; credit mix etc.

Q.4 Which credit score is best?

Ans. A credit score ranging from 800 and above is generally considered as best credit score.

Q.5 How much credit score is required for credit card?

Ans. A different credit score is considered by the various credit card issuer. By and large, the suitable or minimum credit score required for a credit card is 700.

Q.6 Is credit score of 700 good?

Ans. Yes, to a large extent, a credit score of 700 is considered as good.

Q.7 How credit score is calculated in India?

Ans. The credit score is calculated based on the information gathered by credit information companies. Firstly, an individual undertake transaction which is relevant for credit score. Then, information of such transaction is given to the credit information companies. Based on such information, a credit score is worked out by the credit information companies.

Q.8 How much credit score is good in India?

Ans. A credit score of 700 and above is considered good in India.

Q.9 How much credit score is good for home loan?

Ans. A good credit score for a home loan generally starts from the score of 700 and above.

Q.10 How much credit score is required for personal loan?

Ans. No specific credit score is defined as a minimum credit score in the case of a personal loan. However, a score ranging from 750 and above is the minimum required for a personal loan.

Q.11 Why credit score is important?

Ans. The credit score is important since it indicates the lender about your ability to repay loans or credit card amount.

Q.12 How often is credit score updated?

Ans. Information like delay in payment of EMIs or credit card will be reported by the lender and based on the same credit bureau will update the credit score on a monthly or quarterly basis.

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One Comment

  1. kriva thakkar says:

    Read here to know about importance of credit score to get business loan. Lendingkart provides Business loan with the best interest rate and minimum documentation. Credit score is calculated based on the information gathered by credit information companies

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