Basics of Credit Score in India

When an individual in India applies for a loan (car, two wheeler, home, personal & others) or credit card; the bank/lender checks the credit score (which is in the range of 300 t0 900) and credit information report based on which final decision is made on the sanctioning the loan. In case of high credit score normally above 750; the borrower is financially categorized as least risky to be a defaulter and the chances of loan approval are higher* whereas the application might get rejected in case of poor score below 750 which means that the borrower might turn out to be a defaulter in the future and hence categorized as less credit worthy.

How CIBIL collects individual’s data

CIBIL regularly maintains database (called as Credit Information Report) of the repayment history of an individual by collating data from it’s 963 member institutions. The information collected by the CIBIL is the applicants – payment history, amount owed, length of credit history, new credit, types of credit used. Based on all these factors, credit score is assigned by CIBIL in India. Read more on how you can check CIBIL credit score.

Reasons for poor credit score

There are many factors which can affect individual’s credit score in India. And the factors are:

1) Delay in loan repayment multiple times

2) Being a loan defaulter previously

3) Crossing the credit limit often

4) Multiple credit cards or personal loan on individual’s name

5) Applied for multiple loans or got approval for new credit facilities making him credit hungry

6) Outstanding loan limit

How to Improve Credit Score

The 3 digit credit score number which shows how an individual is credit worthy, can bring your financial dream come true. You cannot improve your credit score in a day or a month and actually it has to be built up gradually. So here are small but very important tips on improving your credit score:

1) On-time debt payment: You should be debt free. Read this post on overcoming your debts.

2) Checking your credit report once every six months and ensuring it is error free. In case of any mistakes, you should immediately contact your bank/lender to rectify and get this corrected immediately.

3) Past payment behaviour should be 100% consistent as it is the biggest influencing factor to your credit score. So always repay your loan/credit card bills etc. BEFORE DUE DATE.

4) Usage of credit card should be made but cautiously. And also avoid having too many cards which is an indicator the person being credit hungry.

5) Have limited number of credit applications. Higher number could result can negative impact on your credit score.