What is a credit score
A credit score or credit rating is a number that indicates your creditworthiness to lenders.
It takes into account your repayment history and credit files across various loan types.
Why you need a good credit score
Banks and financial institutions use credit scores to assess whether you are worthy of credit.
The better your credit score, the higher are the chances of getting your loan approved.
Good and bad credit scores
The CIBIL score is the most popular in India currently. Their scores range from 300 to 900, with 900 being the best.
Generally a CIBIL score of 750 or higher is considered credit-worthy.
A score of 650 or less is deemed too low to be given credit.
How to improve your credit score: Check your credit report
As a crucial first step, request your credit report from a credit rating firm.
Inspect the report carefully, looking for any errors such as a closed loan marked as pending.
Look for suspicious transactions mentioned in the report, such as a loan you never applied for.
File a dispute with the firm to rectify the errors.
Other ways to improve your credit score
Pay all your loan-related dues on time, such as loan EMIs and credit card bills.
Use your credit limit wisely—use only up to 50% of your credit card limit a month.
Keep a balance between secured and unsecured loans (i.e. debt with and without collateral).
Maintain a reasonable debt-to-income ratio. The higher the debt vis-à-vis your income, the lower your credit score.
Minimise the number of loans you take in a short period of time—only apply when absolutely necessary.
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