A credit score is a three-digit number that shows your creditworthiness and how good your financial health is. It is the score that lenders use to determine the risk of lending you money at any given time. A good credit score opens the door to better financial opportunities, such as better interest rates and quicker loan approvals. Maintaining a good credit score is important for a better financial future.
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Generate wealthEarn 1 Cr# in maturity with Zero LTCG tax¶
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A credit score is a numerical summary that ranges from 300 to 900 in India. It checks your past credit history and behaviour. The credit bureaus like CIBIL, Experian, Equifax, etc. generate the score based on the information provided in your credit report. The credit report includes details about your loans, credit card payments, and any other outstanding payments associated with your credit card. In short, it is a measure of how reliable you are as a person who wants to borrow the money.
Why is Credit Score Important?
Your credit score is an important tool for financial institutions to perform a risk assessment before approving your application.
Loan and Credit Card Approval: A high score increases your chances of getting your loan (e.g., Home, Personal, Auto) or credit card application approved fast.
Lower Interest Rates: Lenders see a high score as an indicator of low risk, often offering you better interest rates, which saves you money over the loan term.
Higher Credit Limits: A strong credit profile can lead to banks granting you higher credit card limits.
Faster Processing: A good score can speed up the loan approval process as lenders require less scrutiny.
How to Check Credit Score for Free?
You can check your credit score for free directly through the official websites of credit information companies (CICs) or through government portals.
Official Credit Bureau Websites: You can visit the official websites of credit bureaus like TransUnion CIBIL, Experian, or Equifax. They are mandated to provide one free credit report to you annually.
Other Financial Portals: Many other financial service platforms offer a free monthly credit score check from one or multiple bureaus.
Credit Score Range: Meaning
In India, a credit score ranges from 300 to 900. The classification of the score generally implies the following:
Score Range (e.g., CIBIL)
Category
Meaning/Impact on Loan Approval
750 - 900
Excellent
Highest probability of loan approval with the best interest rates and terms.
700 - 749
Good
High chances of loan approval with better-than-average terms.
650 - 699
Fair/Satisfactory
Moderate chance of approval; terms may not be the most favourable.
600 - 649
Average/Doubtful
Approval is difficult; if approved, interest rates will likely be very high.
300 - 599
Poor
Very low chances of approval; reflects damaged credit history.
How to Calculate Credit Score?
Credit bureaus use various ways to calculate your score, based on the data in your credit report. While the exact weights can vary, the key factors considered are:
Payment History (Highest Weightage): This accounts for about 35% of your score and checks if you pay your EMIs and credit card bills on time. Late payments, defaults, or settlements severely hurt your score.
Credit Utilisation Ratio: This is the ratio of the credit you are using versus your total available credit limit. Ideally, you should keep your CUR below 30%. This accounts for about 30% of your score.
Length of Credit History: The longer your credit history of responsible borrowing, the better. This gives lenders more data to assess your reliability.
Credit Mix: Having a balanced mix of secured loans (like home or auto loans) and unsecured loans (like credit cards or personal loans) is viewed positively, showing you can manage different types of credit.
New Credit Inquiries: Frequent applications for new credit in a short period result in "hard inquiries", which can temporarily lower your score, as it may suggest financial distress.
What are the Benefits of Good Credit Score?
A score of 750 or above comes with significant financial advantages:
Easier Credit Approvals: Quicker and hassle-free approval for loans and credit cards.
Lower Interest Rates: Access to the most competitive interest rates on all types of loans, leading to significant savings.
Higher Borrowing Limits: Lenders are more confident in giving higher loan amounts and offering better credit card limits.
Better Negotiating Power: You gain benefits to negotiate better loan terms, processing fees, and insurance premiums.
Favourable Housing/Rental Terms: Landlords or housing finance companies may favour applicants with excellent credit scores.
Reasons for Low Credit Score
Understanding the causes of a low score is the first step towards fixing it:
Missed or Delayed Payments: The biggest contributor to a low score is failing to pay your EMIs or credit card bills on time.
High Credit Utilisation: Consistently maxing out your credit card limit (CUR above 30%) signals over-dependence on credit.
Multiple Credit Inquiries: Applying for too many loans or credit cards in a short time frame.
High Proportion of Unsecured Loans: Having too many personal loans or credit cards compared to secured loans (like home loans).
Errors in Credit Report: Mistakes like a loan showing as active even after repayment, or an identity error, can incorrectly lower your score.
How to Increase Credit Score?
You can gradually improve a low score by adopting disciplined financial habits:
Pay Bills On Time, Every Time: Set up auto-pay or reminders to ensure timely repayment of all EMIs and credit card dues.
Maintain Low Credit Utilisation: Keep your credit card balance low, ideally below 30% of your total limit.
Review Your Credit Report Regularly: Check your credit report for errors and raise a dispute immediately if you find any discrepancies.
Avoid Multiple Hard Inquiries: Space out your loan or credit card applications to avoid appearing credit-hungry.
Maintain a Healthy Credit Mix: A mix of secured and unsecured credit managed responsibly is better than having only one type.
Don't Close Old Credit Accounts: A long credit history is beneficial, so keep your oldest credit accounts open, even if unused.
Conclusion
Your credit score is a number that reflects your financial journey and demonstrates your eligibility for future loans. By monitoring and managing your credit score, you can move towards a financially empowered future. While other financial service providers allow you to check your credit score, Policybazaar does not provide the facility to check your credit score. You must rely on official credit bureaus or other authorised platforms to check the score.
FAQs
What is the difference between CIBIL and Credit Score?
Credit Score is the generic term for the three-digit number that represents your creditworthiness.
CIBIL (TransUnion CIBIL) is one of the four major Credit Information Companies (CICs) or credit bureaus in India (the others being Experian, Equifax, and High Mark). CIBIL calculates and issues its own version of the Credit Score, often referred to as the CIBIL Score. Therefore, CIBIL is the agency that provides one type of credit score.
What is considered a 'Good' Credit Score in India?
In India, a credit score of 750 and above is generally considered good to excellent. Lenders view scores in this range favourably, increasing your chances of quick loan approval and accessing the lowest available interest rates.
How often should I check my credit score?
It is advisable to check your credit score and report at least once every three to six months. Checking your own score (known as a soft inquiry) does not negatively affect it.
Does checking my own credit score affect it?
No, checking your own credit score through a free service or directly with a credit bureau is considered a 'soft inquiry' and does not hurt your score. Your score is only affected by hard inquiries, which occur when a lender checks your score after you formally apply for a loan or a credit card.
What is Credit Utilisation Ratio (CUR) and why is it important?
The Credit Utilisation Ratio (CUR) is the percentage of your total available credit limit that you are currently using.
Formula: Total credit card balance/Total credit limit x 100
A high CUR (ideally above 30%) is a strong indicator of credit dependence and can significantly hurt your score. It is recommended to keep your CUR below 30% to maintain a healthy score.
˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.
Past 10 Years' annualised returns as on 01-12-2025
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
Tax benefit is subject to changes in tax laws. Standard T&C Apply
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).
Generate wealth Earn 1 Cr# in maturity with Zero LTCG tax¶
Double tax savings^ On premiums (under 80C) and on maturity (under 10(10D))
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