Just after you finish your studies, you enter a job and start you career. Your responsibilities increase, you start to pay your bills and take care of all your expenses. On certain instances, you may have to approach a bank for a loan to manage an immediate financial obligation. Now is the time for you to become familiar with the term ‘Credit Score’. On an average, it might take approximately 20 years since birth to know about this mysterious word. You would be lucky if you become familiar with it much earlier as it can help you plan your finances more efficiently and take informed financial decisions. Below are the 10 things that you should know about credit score.

1. Not everyone has credit score

One gets credit score only after she/he has borrowed from a bank/ lender in the form of a loan or credit card. The credit score is created within 3 to 6 months from borrowing. Individuals who have never borrowed through a bank or NBFC won’t have a credit score. The credit score ranges between 300 to 900. Any credit score of 750 and above is considered a good score.

2. You can get your credit score and credit report for free

Credit score is generated by credit bureaus. It is calculated based on your credit activities that are reported by the lenders to the bureaus. RBI has mandated all the credit bureaus to provide the people the facility of checking their credit score for free once a year. You can also check your credit score for free any number of times on third-party fintech organizations that have tie-ups with these credit bureaus. However, when it comes to credit report, you can get that for free only once a year.

3. Credit score from different credit bureaus is not the same

When you check your credit score from more than one channel, you will surprisingly find it to be different. It will not be the same as each credit bureau has different mechanism to calculate the credit score. The weightage of score given to each parameter vary with each bureau. However, the variations won’t show a huge difference. But you needn’t worry. Lenders take into consideration the bureau that is generating you credit score and base your creditworthiness accordingly.

4. Your credit score is calculated based on these factors

Your credit score is the reflection of your credit activities. It is calculated based on your repayment history, credit mixture, credit age, credit utilisation ratio and number of hard enquiries. You will have a good credit score when you have a good positive combination of all the aforementioned parameters.

5. It takes time to build an excellent credit score

Yes, it may sound demotivating, but the fact is, it takes time to build a stellar score. However, it is not hard either. You can keep your credit score intact just by repaying the credit you have taken from your lender. Building an excellent credit score requires mixture of all credits, low credit utilisation ratio on credit cards, long credit history, etc.

6. Checking your own credit score won’t hurt it

Many people make the assumption that frequently checking credit score can hurt it. But it is not true. Frequently checking your own score will not have any impact on it. You can check it for free as many times as possible. It is also important to keep track of your credit score as it can help you take informed credit decisions.

7. Multiple credit applications at a time can hurt your credit score

When you apply for a credit product from any lender, a hard enquiry is made to the credit bureau and the lender checks your credit score. In such instances, a hard enquiry may have a minor impact on your score. If too many hard enquiries are made within a short period of time, it can have a negative impact on your score as it implies you are credit hungry.

8. Maxing out your credit card limit can affect your credit score

Although it is slightly hard to prevent the temptation of using your credit card when you run out of money or you want to grab an exciting offer, you should be prudent while using your card. Every credit card comes with a certain credit limit up to which you can spend per month. Your credit score will go for a toss when you max out your credit card limit often. Hence, it is important you diligently use the card within your means as defaults can have a negative impact on the score.

9. Your credit score can get you better terms on loans

A good credit score is hugely beneficial, especially when you apply for big-ticket loans such as loan against property, home loans, etc. A good credit score gives you the bargaining power to get lower interest rates. Even a slight reduction of interest rate on these loans can save lakhs of rupees. Lenders also offer waiver on processing fees for having a good credit score.

10. You can improve your poor credit score

One gets a poor credit score mainly due to defaults, irregular repayments on loans and credit card bills, settled loan or credit card account, written off accounts by the lenders, foreclosure, etc., can affect your credit score immensely. However, you can still improve your bad score by clearing the past dues to the lenders. You can also sign up for credit improvement services that are offered several financial services companies like CreditMantri.

End Note

Initially, you may have a good credit score. However, building an excellent credit score or poor credit score ultimately lies in your financial decisions. With the good financial behaviour, you will become eligible for multiple loans at lower rates which can save you a lot of money.