A Guide to Credit Scores and How to Improve Yours

A credit score is a three-digit number that scores a consumer’s creditworthiness. It’s one of the most important parameters used by banks and financial institutions to assess the credit health of an applicant before approving a loan. Let’s see what a credit score means, the factors affecting it, and how you can maintain a good credit score.

What is a credit score?

A credit score is a number ranging between 300-900 which assesses the creditworthiness of an individual. This credit score is given by government-authorized credit bureaus. There are 4 such credit bureaus in India. 

What is considered a good credit score?

A good credit score is essential for consumers to maintain their creditworthiness. A score between 700-900 is a healthy score and has a higher chance of getting a loan approval. The higher the credit score is, the higher the chance of the loan getting approved faster and at a lower interest rate. It’s important to regularly check your credit score and make sure it is within a healthy range. The below chart depicts the impact of different credit scores on your creditworthiness.

Credit ratingAnalysisInterpretation
300-550PoorNeed to work on improving the credit score, low creditworthiness, higher interest rates, no lenders
550-650FairNeed to work on improving the score, few lenders, still low creditworthiness, higher interest rates
650-750GoodBetter interest rates, most lenders available, fair creditworthiness, can still work to improve
750-900Excellenthighly creditworthy, low-interest rates, all lenders available, faster loan approval

Factors affecting credit score

A credit score is calculated taking into consideration the past behavior of the consumer in terms of handling their credit payments, etc. 

Let’s take a look at what factors affect your credit rating –

  • Payment History- This is one of the most important factors lenders consider before approving a loan. It is also an important part of how your credit score is determined. Let’s see what are the important components of payment history –
  • Payment of your dues – Have you paid your credit card bills, EMIs, and utility bills on time? If yes, then this will positively affect your credit score. If not, then you need to discipline yourself financially else this will lower your credit score.
  • Credit mix – Ideally your credit profile should be a mix of secured and unsecured loans. This helps builds trust in the lender and hence impacts your score positively
  • Credit utilization limit – Utilizing your credit limit to the maximum or asking to increase the credit limit time and again reflects poorly on your credit score. It simply means that you might have a lot of payments due and are highly likely to default on a new loan.
  • Applications for too many credit cards or credit limits – Too many credit cards and too many inquiries for credit limits are not good for your credit score. The lenders might perceive it as your inability to pay back in time because of too many credit obligations.
  • Length of your credit history – A good account of long credit history will help you achieve a healthy credit score and consequently, easy loan approvals with low-interest rates.

The below diagram depicts the percentage-wise distribution of factors affecting your credit history.

Read More: Financial Planning for the Creatives

How to improve your credit score?

With careful analysis and financial discipline, you can easily maintain a good credit score. It not only helps maintain good creditworthiness but also helps in applying for new loans. Let’s discuss each factor separately.

  • Pay your dues on time – Be it your credit card bills or EMIs, utility bills, or any other outstanding bills, try and pay them before/on the due date. A few ways to maintain financial discipline are as below –
  • Set reminders for payment due dates – This helps in avoiding delays in payments
  • Set auto debit facility – Set up auto-debit facility for monthly payments like rent, EMIs, etc.
  • Avoid paying only the minimum amount due – This can lead to the accumulation of loans as every time you are only paying the minimum and leaving the maximum amount for later.
  • Keep accounts with good credit history on your report – Seeing accounts with a good credit history, i.e., payment of dues on time, full payment of dues, no extra credit taken, etc. reflects well on your report.
  • Credit utilization – Make sure you do not use the credit limit to the fullest. It reflects a lot of debt on your report. Lenders might not be comfortable approving loans if you are already using your current facility to the maximum.
  • Check your credit report for errors – Sometimes, there might be errors on your credit report which might lead to a bad score. Make sure you rectify the errors by contacting the credit bureau and explaining the error. Getting the error corrected will improve your CIBIL™ score automatically.
  • Restrict the number of inquiries – Limit the number of times you apply for a credit card or loan. Too many inquiries reflect badly on your report as lenders will get the impression that your financial needs are very high. It could be interpreted as you might not be able to repay the loan in full. 

Credit bureaus in India

Credit bureau agencies essentially collect and analyze the credit data of individuals or a business. This could be data related to credit card usage, loan repayments, loans taken, EMI payments, payment of utility bills, etc. The information they analyze is from various lending companies, money collection agencies, banks, etc. Their purpose is to establish the creditworthiness of an individual which helps other institutions decide whether they want to approve loans or not.

Which are the top-rated credit bureaus in India?

  • Equifax
  • Experian
  • CRIF Highmark

Fun Facts About The Credit score 

  • Checking your credit score is free. You could easily check your credit score on CreditMantri and take action accordingly if needed.
  • You can reverse a negative credit score. Yes, a negative credit score isn’t your shadow forever and can be reversed by trying to improve it, taking into account the measures listed above.
  • Your family’s credit score doesn’t affect your credit score. A person’s credit score is based on their credit behavior and is not influenced by anyone else’s credit history.
  • A credit score will be impacted by Income . That’s correct. A credit score is determined solely based on your credit history and is not impacted by changes in your income.


A credit score is a three-digit number that determines your creditworthiness. It is important to maintain a good credit score to avail of loans quickly and at a lower interest rate with the best offers. A good credit score is usually between 700-900. 

You can improve your credit score by paying your bills on time, having a good credit mix between secured and unsecured loans, keeping the credit utilization ratio within 30%, keeping good credit history on your account, and not making too many hard inquiries. It is important and easy to maintain your credit score and it goes a long way in maintaining your financial discipline.

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