Importance of credit scores in India: What you should know
What's the story
A credit score is a three-digit number that lenders use to decide how likely you are to repay debt. In India, this score ranges from 300 to 900, with higher scores indicating better creditworthiness. Understanding your credit score is crucial if you're planning to apply for a loan or a credit card, as it significantly influences the interest rates you'll be offered.
Significance
The importance of a good score
A good credit score (above 750) can open doors to lower interest rates on loans and credit cards, making borrowing more affordable. It can also increase your chances of loan approval and access to higher credit limits. Conversely, a low score may lead to loan rejections or high-interest rates, costing you more in the long run.
Influencers
Factors affecting your score
Several factors influence your credit score: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%). Late payments, carrying high balances relative to your limit, and frequently applying for new credit can negatively impact your score. Managing these elements effectively is crucial for maintaining a good credit rating.
Enhancement
Improving your credit score
To enhance your score, ensure timely bill payments and keep card balances low. Avoid closing old accounts suddenly and limit new credit applications. Regularly monitor your report to identify errors or fraud that could impact your score negatively. It's wise to start these practices early, as building a good credit score is a gradual process that requires time.
Vigilance
Monitoring your credit report
In India, you're entitled to one free credit report annually from four RBI-licensed bureaus: CIBIL(tm), Equifax(r), Experian(r), and CRIF High Mark(r). Reviewing these reports is key for identifying inaccuracies or signs of identity theft. If errors are found, dispute them with the bureau for correction. This process is essential for maintaining an accurate and healthy credit score.