A credit score is the most important parameter that lending institutions depend on to verify your creditworthiness. The credit score ranges from 300 to 900. The higher your score, the better your loan eligibility at lower interest rates. Considering this, maintaining a good CIBIL score is paramount when planning to opt for a loan.
In the following sections, you will learn what a good credit score is, its importance for your loan eligibility, and how to make it happen.
What is a Good Credit Score?
To understand this, you must first know the credit score range. These are the typical credit score ranges:
| CIBIL Score Range | Rating |
|---|
| Below 600 | Poor |
| 600 – 649 | Doubtful |
| 650 – 699 | Fair |
| 700 – 749 | Good |
| 750 – 900 | Excellent |
After understanding these ranges, you can see that a score above 700 is a good credit score. It enhances your loan eligibility and helps you get a loan with ample amounts and at a lower interest rate.
Why Having a Good Credit Score Is Important?
It signals borrowing responsibility to lenders. That means it makes taking out loans, credit cards, mortgages, and other credit products easier. Here's a look at why having the best credit score is important:
| Ability to Borrow | A good credit score makes loans easier to borrow. |
| Approval Speed | Those with a decent credit score get faster approvals. |
| Formalities Involved | Lending institutions demand minimal formalities from applicants with good credit scores. |
| Documentation Requirements | Loan seekers with a good credit rating must submit minimal documents for loan applications. |
| Interest Rate | High-score individuals are low-risk borrowers for lenders, convincing them to charge a lower interest rate. |
| Repayment Term | Since a high credit score indicates timely repayment with a low chance of default, lenders can approve loans with longer repayment terms. |
| Additional Charges | Those with a good credit score must pay minimal additional charges due to high eligibility. |
How to Check >How to Check & Calculate Your CIBIL or Credit Score?amp; Calculate Your CIBIL or Credit Score?
Credit bureaus calculate your credit score by analysing factors like your repayment history, credit length, credit utilisation, recent credit enquiries, and credit mix. They give specific weight to these elements and assess them collectively to calculate your credit score. A score above 700 is a good credit score that lending institutions expect. You can check your credit score by following these steps:
- Visit the credit bureau’s official website.
- Click 'Select your credit score.'
- Type in your identity details, like your PAN card, Aadhar card, passport number, etc.
- Enter your contact details
- If you want to subscribe to a plan, select the plan and make the payment
- Request your credit report, which you will receive via email within a few hours
- Download your credit report, where you can see your credit score
Also Read: What is a Credit Score - Meaning, Importants and its Calculation
How Does Outstanding Debt Affect Your Credit Score?
Lending companies use this 3-digit number to determine repayment history and credit accumulation. It can impact your loan amount, interest rate, repayment tenure, and other terms and conditions. Here’s how outstanding debt can affect your credit score:
- Unpaid balance reduces your credit score
- Late payments harm your credit rating
- High credit utilisation ratio is a red flag
- Not borrowing credit at all is not good
- A low DTI ratio boosts your credit score
- Borrowing different credit types increases your score
What Factors Impact Your Credit Score?
Several factors impact your credit score and contribute to decreasing or increasing the number. These are the prime factors affecting your ability to achieve the best credit score:
1. Length of Your Credit Record: Longer history shows stability and responsible management, boosting your score.
2. Debt Repayment History: Timely repayments demonstrate reliability, significantly improving your score over time.
3. Credit Utilization Ratio: High utilization lowers your score; lower utilization signals responsible credit use.
4. Diversity in the Credit Mix: Managing different types of credit positively influences your score.
5. Current Financial Obligations and DTI Ratio: A high DTI may lower your score if it suggests difficulty managing payments.
6. Outstanding Debt Balances: Large balances relative to credit limits can negatively impact your score.
7. Recent Credit Applications: Multiple applications suggest instability and may temporarily lower your score.
8. Errors in the Credit Report: Inaccuracies harm your score by misrepresenting your creditworthiness; correcting them improves your score.
How Can You Maintain A Good Credit Score?
If you wish to maintain a healthy credit profile, here are a few simple and quick things to do:
1. Pay your bills on time every time
Since your repayment history is the essential factor in determining your credit score, pay each loan EMI and credit card bill on time to maintain it high. Set reminders or activate the e-mandate for timely payments so you don't miss a single due payment. Even a single missed payment may reduce your credit score by a few points.
2. Pay off your debts
Paying off the outstanding balances on your current debt accounts will help maintain your credit score and improve it over time. Pay off high-interest rate debts first and then proceed to low-interest ones. Doing that will help you become debt-free sooner and maintain the best CIBIL score for a long time.
3. Keep your credit card balance well below the limit
Credit cards come with a credit limit up to which you can shop using the card. However, exhausting the entire monthly credit limit projects you as credit-hungry and reduces your credibility for future credit. So, reduce credit card usage and maintain a credit utilisation ratio below 30-40% to maintain a good credit score.
4. Apply for credit sparingly
Obtaining loans has become extremely easy and quick these days. Lenders offer ample loan amounts to creditworthy individuals. However, you must evaluate your requirements before borrowing and apply for credit only if necessary. Overborrowing will reduce your credit score and make repayments challenging for you.
5. Check your credit reports regularly
A regular credit score check is a great step to maintain your credit score. You can identify any errors on time and get them rectified before they damage your credit score ranges. If your credit score drops, you can spot the reasons in time and take the necessary steps to save it.
Why is Regularly Monitoring Your Credit Score Important?
- Identify and rectify inaccuracies or errors in your credit report promptly.
- Detect signs of identity theft or fraudulent activities early.
- Maintain a high credit score to qualify for lower interest rates on loans and credit cards.
- Access better credit terms and conditions, saving money in the long run.
- Monitor your financial behavior and spending habits.
- Make informed decisions to improve or maintain your credit health.
- Ensure your credit score meets the criteria for renting a home or securing a mortgage.
- Be prepared for potential employers who may check your credit as part of their hiring process.
How Does Having A Good Credit Score Impact Your Loan Borrowing Process?
A good credit score significantly impacts your loan borrowing process by offering lower interest rates, better terms, and quicker approval.
- Lower Interest Rates: Lenders are more likely to offer you lower interest rates, reducing the overall cost of your loan.
- Higher Loan Approval Chances: A good credit score increases the likelihood of loan approval, as lenders view you as a lower-risk borrower.
- Better Loan Terms: You can negotiate more favorable loan terms, including longer repayment periods and lower fees.
- Increased Loan Amounts: Lenders may be willing to offer higher loan amounts, giving you more financial flexibility.
- Faster Approval Process: With a good credit score, the loan approval process is often quicker and smoother.
- Access to a Variety of Loan Products: You may qualify for a wider range of loan products, including those with exclusive benefits and features.
- Enhanced Negotiation Power: A strong credit score gives you leverage to negotiate better terms and conditions with lenders.
- Reduced Need for Collateral: Lenders may require less or no collateral for a loan, making the borrowing process simpler.
- Lower Insurance Premiums: Some lenders offer lower insurance premiums on loans to borrowers with good credit scores.
- Improved Financial Reputation: Maintaining a good credit score enhances your financial reputation, making future borrowing easier
How you can Apply Personal with Good Credit Score?
Applying for a Personal Loan with a Good Credit Score. Here's a simplified approach:
- Visit the Hero FinCorp website or instant personal loan app.
- Go to the Personal Loan section and click ‘Apply Now’.
- Enter a few necessary details.
- Scan and upload the required documents.
- Wait for the verification process to complete.
- Accept the loan offer and get disbursal in a short period.
Conclusion:
Now that you know what a credit score is and how you can maintain it. Take the necessary steps to maintain it and improve your eligibility for future loans. Since it is a crucial number that determines your creditworthiness, keeping it within the high credit score range is important to get the required funding at the right time.
Frequently Asked Questions
Is 750 a good CIBIL score?
Yes, any score above 700 is a good CIBIL score.
Is A 900 credit score good?
The credit score ranges from 300 to 900. So, a 900 credit score is the maximum score you can get.
Is an 800 credit score easy?
Achieving a credit score of 800 requires planning and responsible credit behaviour. You must make all your due payments on time, diversify your credit portfolio, and use credit responsibly to achieve an 800 credit score.
How can I raise my credit score in 60 days?
Pay off all outstanding balances, never miss payments, and avoid making new loan applications to raise your credit score in 60 days.
How do I increase my credit score in 30 days?
Check your credit report to identify and rectify any errors to increase your credit score in 30 days. If your report is error-free, pay off your debt balances, diversify your credit profile, and avoid credit card usage to increase your credit score in 30 days. However, getting noticeable results may take a longer time.
Why is my credit score going down when I pay on time?
Your repayment history is only one of the factors affecting your credit score. If you pay your bills on time, it might be low due to other reasons like high DTI or CUR, multiple credit applications recently, errors in the credit report, etc.
How is the Consumer CIBIL score calculated?
The consumer CIBIL score is calculated based on your credit history, which includes factors like repayment history, credit utilization, credit mix, and the length of your credit history.
