Managing and maintaining your credit score is quite simple, and not a daunting task like it seems to be. Many people who are New to Credit or do not have credit history might think credit score as a major contributor in achieving their financial goals. While this is not completely true, credit score still has a direct connection with your financial stability. Here, you shall learn about the meaning, ranges and significance of credit score. Moreover, you will also get to know the importance of your credit score, along with various factors that affect your credit score.
What is a Credit Score?
Your credit score summarises your creditworthiness and past payment history. Credit score is a 3-digit numeric that represents the financial stability, eligibility and credit trustworthiness of consumers to pay back their loan EMIs and credit card dues on time. It is also considered as a risk score that describes the risk of an applicant while availing funds for the lenders. The credit score ranges from 300-900, wherein any score as close to 900 is considered good by the lenders. Your credit score is calculated and generated on the basis of consumer credit information provided by the lending banks and NBFCs to the credit bureaus on a monthly basis.
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In India, four leading Credit Information Companies (CICs) or credit bureaus calculate and generate credit scores for individuals named TransUnion CIBIL, Experian, Equifax and CRIF High Mark. Each credit bureau uses different credit scoring systems or algorithms to generate their unique credit scores for consumers.
Credit Score Range
Credit score that is calculated and generated by the Credit Information Company can further be categorised into various ranges to understand its meaning and significance. Check and consider your credit score’s range to build or improve it by dedicatedly following the appropriate measures.
| Score Band | Category | Significance |
| <300 | Poor Credit Score | It means you have not taken any loan or credit card and have no credit history |
| 300-550 | Very Low Credit Score | Credit history is damaged; find out ways to improve it. Check your credit report regularly to find errors. |
| 551-620 | Low Credit Score | |
| 621-700 | Fair Credit Score | You are close to maintaining a strong credit score. Work on ways to build it further |
| 701-749 | Good Credit Score | You are a responsible credit borrower and are eligible to avail funds from leading Banks/NBFCs |
| 750-900 | Excellent Credit Score | Your credit track-record has been excellent and likely to get best offers from financial institutions |
Note: The mentioned credit score range is only indicative and may vary from lender to lender and bureau to bureau.
Significance of Credit Score
Credit score influences a major part of your personal life, whether you want to buy a home, spend on marriage or education, own a car, make purchases on credit card and much more. Good credit score makes it all happen with ease by providing you access to a wide range of credit products at lower interest rates. Low or poor credit score makes it difficult for you to take every benefit that you could have availed in fulfilling your dreams. High credit score makes you a financially secure and responsible credit borrower in the eyes of the lender.
Factors that affect your Credit Score
You also need to know the basic factors that can negatively impact your credit score. Try to improve on these factors to build and maintain a decent credit score.
- Not checking your credit report regularly for errors
- Missed or delayed payments of loan EMIs or credit card dues
- Maxing out on total assigned credit limit frequently without repaying it back in full
- Making multiple credit inquiries in short time or simultaneously
- Lesser age of your credit history may lead to now or no score
Useful facts:
As per the recent study performed by a renowned Credit Monitoring Company, the average credit score of Indians was 715 in the financial year 2021-22. Although a credit score of 715 Is considered fair, still there is a need for even more responsible credit behaviour from consumers across the nation. The most interesting and alarming fact from the study was that still there are 63% consumers with a credit score between 300-747. There is a lot of scope for individuals to improve their creditworthiness and avail many borrowing benefits. Therefore, start building and improving your credit score to make your near future financially secure and enjoy long-term benefits.
