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 gvernment 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.
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 is Credit Score Calculated?
Credit score is calculated using the scoring model, a mathematical formula which is used to evaluate information from your credit reports to predict borrowing behaviour. Your credit score is generally calculated using 5 key factors.
- Payment history: Your credit history significantly affects your credit score. It evaluates whether you have paid older credit bills on time or not. It also accounts for your loan defaults, missed payments, accounts sent to collections, foreclosures or bankruptcies.
- Credit utilisation: Credit utilisation includes the total available credit limit you are currently using. It is calculated by dividing your total revolving credit balance by your total available credit limit.
- Length of credit history: A longer history of credit is considered better than a shorter one, as it provides the lender with a vast scope of past borrowing behaviour of the borrower.
- Credit mix: This criterion depicts the variety of credit products you manage. If it demonstrates that you can manage a mix of both revolving credit, like credit cards, and instalment-based loans, your calculation will be positively impacted.
- New credit and inquiries: New credit triggers a lender to pull your entire credit report; this is known as a hard enquiry and reflects meaningful signals. If you submit various credit applications during a small window of time, it can indicate potential financial distress or overreliance on debt.
Note that you can have multiple credit scores, as the calculation heavily depends on the credit bureau providing you with the report.
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. |
Reasons for Low Credit Score
The first step towards improving your credit score is to understand why your score is low:
- Late or Missed Payments: Missing payments on EMIs is one of the key reasons for a lower credit score.
- High Credit Utilisation: If you use a large portion of your available credit limit constantly or max out your credit cards, your credit utilisation ratio will increase, which in turn can affect your credit score and bring it down.
- Multiple Credit Inquiries: If you constantly apply for credit inquiries or credit cards during a small time period, it will create hard inquiries on your credit score. This can further depress your score.
- High Proportion of Unsecured Loans: Having more unsecured credit accounts, such as credit cards or personal loans,s than secured accounts, such as a home loan,n can reduce your credit score.
- Errors in Credit Report: Any inaccuracy on your credit report can reduce your credit score.
How to Increase Credit Score?
Credit score is an important factor in determining your next credit. To ensure that your credit score remains high, you can follow the listed steps.
- Low Credit Utilisation: A Credit usage under 30% will help you maintain your credit score. Try to ensure that you are not using a large portion of your credit limit at once or max out your credit card during a small time frame.
- Review Your Credit Report and Dispute Inaccuracies: Always check your credit reports and report any inaccuracy or discrepancy with your lender.
- Limit Credit Inquiries: You can also limit or reduce the number of credit inquiries you partake in during a single time frame. This will ensure that you have limited hard enquiries on your credit score.
- Maintain a Healthy Credit Mix: Having a mix of credit accounts, like credit cards, instalment loans and mortgages, can help your credit score improve.
Benefits of Maintaining a Good Credit Score
A score of 750 or above comes with significant financial advantages:
- Easier Credit Approvals: With a good credit score, lenders are assured of your creditworthiness, thus making it easier to approve your credit applications
- Lower Interest Rates: A higher credit score gives you a better chance to negotiate lower interest rates on your loan repayments.
- Higher Borrowing Limits: A higher credit score also allows you to apply for higher borrowing limits, which lenders generally approve.
- Better Negotiating Power: You also stand a better chance to negotiate the loan terms, your interest rates and borrowing limits because lenders will be more inclined to reason with you due to their confidence in your ability to repay.
- Favourable Housing/Rental Terms: Landlords or housing finance companies tend to favour housing applicants with excellent credit scores.
Conclusion
A credit score is an important indicator of your past credit and is a tool used by lenders to check if you can repay yourcredit onn time. A good credit score can help you benefit in various ways provided that you keep your credit history clean and timely.
FAQs
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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.
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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.
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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.
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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.
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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.
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