If you don't know what this score is or how it is calculated, here are a few essential things that can help answer your queries-
1. What is a Credit Score?A credit score is a 3-digit number ranging between 300-900. It is calculated based on how well you have managed your loans and credit card payments in the past. It is with the help of this score that financial institutions can know whether or not an applicant is a creditworthy individual. In most cases, financial institutions prefer individuals with a score of 750 and above.
2. How is the Credit Score Calculated?Financial institutions like loan and credit card providers send their customer data to the credit bureaus like CIBIL. The bureau then uses its proprietary algorithms for calculating the credit rating of the customers.
Factors like how many loans or credit cards you have taken or used, whether or not you repaid them on time, type of loan, etc. are taken into consideration for calculating the score. Apart from CIBIL, there are 3 other credit bureaus, namely Equifax, Highmark, and Experian that have been licensed by the RBI to work as credit bureaus in India.
How to Improve Credit Score?You can do a credit score check by visiting the official website of credit bureaus. Some bureaus offer credit report for free while others charge a one-time or annual fee for the same. If your score is below 700-750 and you want to apply for a loan or credit card, here are a few different things you can do for improving your score-
- Pay credit card bills and loan EMIs on time
- Use credit only when required
- Avoid applying for too much credit within a short time period
- Check your credit report for any inaccuracies
Understanding Credit ScoreWith the increasing cases of defaults and late payments, financial institutions now lay a major emphasis on the credit score of every applicant. If you are planning to apply for loan or credit card, make sure that you meet the credit score requirement of the lender or card provider so that your application can be quickly approved and processed.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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