Is Your Credit Score Good Enough? Here’s Your Checklist for a Healthy Financial Score

By Finance News Desk | Published on September 27, 2024

Credit Score: In the current financial climate, maintaining a healthy credit score is not just a good habit—it’s essential. Whether you’re looking to purchase a home, apply for a car loan, or get approved for a new credit card, your credit score plays a significant role in the approval process. With financial awareness growing across the country, understanding what makes a credit score “good” and how to improve it can unlock numerous financial opportunities.

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India’s Growing Awareness of Credit Scores

According to the latest report by TransUnion CIBIL, India’s largest credit bureau, as of March 2024, over 119 million Indians had actively monitored their CIBIL score. This represents a whopping 51% year-over-year increase, indicating that more Indians are becoming aware of the importance of keeping track of their financial health.

Gen Z and Millennials are at the forefront of this movement, accounting for 77% of those monitoring their credit scores. This generation’s proactive approach has proven to be effective—46% of those who regularly checked their CIBIL score saw an improvement within six months. In comparison, only 41% of people who did not monitor their score saw similar improvements.

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The data underscores a key takeaway: keeping an eye on your credit score can open doors to better financial deals, including lower interest rates, higher loan limits, and overall more favorable lending terms.

What Is a Credit Score?

A credit score is a three-digit number that represents your creditworthiness, or in simpler terms, your ability to repay borrowed money. In India, credit scores usually range from 300 to 900, with a score above 750 considered ideal. The higher your score, the more likely you are to secure credit under favorable terms.

Here’s a breakdown of different credit score categories:

• 750 to 900: This range is considered excellent. Borrowers with scores in this range are often offered the best terms, such as lower interest rates and quick loan approval.
• 700 to 749: This is a good score. While not as ideal as the highest bracket, it still represents a solid credit history and should help secure reasonable loan terms.
• 650 to 699: A fair score. You may still qualify for loans or credit cards, but the terms, such as interest rates, may not be as favorable.
• 600 to 649: A poor score. Securing loans and credit cards becomes difficult in this range, and any offers may come with high interest rates and rigid conditions.
• Below 600: A score in this range signals a high-risk borrower. Lenders may hesitate to offer credit, and if they do, the terms are likely to be unfavorable.

It’s important to note that the interpretation of a credit score may vary slightly depending on the credit bureau. In India, there are four major bureaus: TransUnion CIBIL, Equifax, Experian, and CRIF High Mark.

What Factors Affect Your Credit Score?

Several factors contribute to determining your credit score. Knowing these can help you manage and improve your score over time.

1. Payment History: One of the most critical aspects is whether you’ve paid your bills on time. Missed or late payments can significantly lower your score.
2. Credit Utilization: This is the ratio of how much credit you are using compared to your total credit limit. Keeping your credit utilization below 30% is ideal.
3. Length of Credit History: The longer your credit history, the better it reflects on your score. A lengthy history shows that you have experience in managing credit over time.
4. Types of Credit: Having a diverse mix of credit types, such as credit cards and loans, can positively impact your score, provided you handle them responsibly.
5. New Credit Applications: Each time you apply for new credit, a hard inquiry is made, which can lower your score temporarily. Too many applications in a short time frame may indicate financial distress.

How Can You Improve Your Credit Score?

Improving your credit score is not an overnight process, but with consistent effort, it’s entirely possible. Here are some proven strategies:

1. Pay Bills on Time: Your payment history has the most significant impact on your credit score. Set up reminders or automatic payments to avoid missing due dates.
2. Limit Your Credit Utilization: Try to use no more than 30% of your credit limit. For example, if your credit limit is ₹1,00,000, aim to keep your usage below ₹30,000.
3. Check Your Credit Report Regularly: Mistakes in your credit report can drag down your score. Make it a habit to review your report regularly and rectify any errors immediately.
4. Avoid Applying for Unnecessary Credit: Every credit application results in a hard inquiry, which temporarily lowers your score. Apply for credit only when absolutely necessary.
5. Maintain a Balanced Credit Mix: A healthy mix of secured loans (e.g., home loans) and unsecured credit (e.g., credit cards) demonstrates your ability to manage various financial obligations effectively.

Managing Your Credit Score with Digital Tools

Fortunately, managing your credit score has never been easier, thanks to digital tools. Platforms like Moneycontrol allow users to check their credit scores for free and offer valuable insights to help manage and improve credit health. By regularly monitoring your credit score, you can stay informed and take timely action to improve it, ensuring you always have access to the best financial products.

Tracking your credit score not only keeps you informed about your financial standing but also enables you to identify areas for improvement. It also allows you to take proactive measures to maintain a healthy score, ensuring you qualify for better offers from lenders.

Summary: Why a Good Credit Score Matters

A good credit score is more than just a number—it’s a reflection of your financial health. With a score of 750 or above, you position yourself as a low-risk borrower, increasing your chances of receiving lower interest rates, higher credit limits, and favorable loan terms. Even a score in the range of 700-749 can offer significant advantages.

On the flip side, a low credit score limits your financial opportunities. You may struggle to obtain loans or credit cards, and when you do, the terms will likely be less favorable. By regularly monitoring your score, paying bills on time, and managing your credit responsibly, you can improve your financial standing and ensure that you’re always in good stead with lenders.

Disclaimer:

The information provided here is for general guidance on credit scores and financial health. Readers are encouraged to consult financial experts for personalized advice and should regularly review their credit report to stay updated on their financial standing.