How to build credit score in India

Credit Score in India: Everything You Need to Know

A credit score is a crucial financial metric that determines your creditworthiness and influences your ability to secure loans or credit cards. In this guide, we will explore:

1. What is a Credit Score?


2. Credit Bureaus in India


3. Factors Affecting Credit Score


4. How to Check Your Credit Score for Free?


5. Benefits of a High Credit Score (750+)


6. How to Improve Your Credit Score?


7. How Credit Score Affects Loan & Credit Card Interest Rates?


8. Common Credit Score Myths & Misconceptions




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What is a Credit Score?

A credit score is a three-digit number assigned by credit bureaus based on your credit history. It reflects your creditworthiness and helps lenders assess the risk of lending to you. Banks, NBFCs, and financial institutions check your credit score before approving loans and determining your borrowing limit.


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Credit Bureaus in India

In India, four RBI-approved credit bureaus provide credit scores:

1. CIBIL (TransUnion CIBIL)

The most widely used credit bureau in India.

Provides a credit score ranging from 300 to 900.


2. Experian

A globally recognized credit bureau operating in India.

Offers a credit score range of 300 to 900.


3. Equifax

An RBI-approved credit bureau with similar scoring criteria.


4. CRIF High Mark

A relatively new credit bureau offering credit scores for individuals and businesses.



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Factors Affecting Credit Score

Several factors influence your credit score. Understanding these can help you maintain or improve your score.

1. Payment History (35%)

Timely repayment of loans and credit card bills is crucial.

Late or missed payments negatively impact your score.


2. Credit Utilization Ratio (30%)

Using too much of your credit limit can lower your score.

Keeping credit utilization below 30% is recommended.


3. Credit Mix (10%)

A healthy mix of secured (home, car loans) and unsecured loans (credit cards, personal loans) improves your score.


4. Length of Credit History (15%)

The longer your credit history, the better your score.

Avoid closing old credit accounts.


5. New Credit Inquiries (10%)

Multiple loan or credit card applications within a short time can reduce your score.


6. Number of Active Accounts

Having too many open loan accounts can negatively impact your score.



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How to Check Your Credit Score for Free?

Many financial platforms offer free credit score checks. It is advisable to check your score at least once every six months.

Popular Websites for Free Credit Score Checks:

Bajaj Finserv

BankBazaar

Paisabazaar

CRED App (For credit card users)


Steps to Check Your Credit Score Online:

1. Visit any of the above websites.


2. Enter your PAN card number (mandatory for credit reports).


3. Provide your mobile number and email ID.


4. Verify using an OTP.


5. View and download your credit score.




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Benefits of a High Credit Score (750+)

A high credit score offers several advantages:

1. Easier Loan Approvals

Banks and NBFCs approve loans faster for high-score individuals.


2. Lower Interest Rates

A high credit score helps you secure loans at lower interest rates.


3. Higher Credit Card Limits

Banks offer higher credit limits to individuals with good credit scores.


4. Pre-Approved Loan Offers

Many lenders provide pre-approved loans based on a high credit score.


5. Faster Loan Disbursement

A strong credit score leads to quick loan processing and disbursement.



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How to Improve Your Credit Score?

Follow these steps to enhance your credit score:

1. Pay Bills on Time

Always pay credit card bills and EMIs before the due date.


2. Keep Credit Utilization Below 30%

Avoid using more than 30% of your total credit limit.


3. Avoid Too Many Loan or Credit Card Applications

Excessive applications within a short period can lower your score.


4. Maintain a Good Credit Mix

Keep a balance of secured and unsecured loans.


5. Keep Old Credit Accounts Open

Closing old accounts reduces your credit history length, impacting your score.


6. Check Your Credit Report Regularly

Review your credit report every six months to detect errors and improvements.


7. Avoid Defaulting on Loans

Never miss an EMI payment, as even one default can significantly impact your score.


8. Increase Your Credit Limit (But Use It Wisely!)

A higher credit limit improves your credit utilization ratio if you keep spending low.



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How Credit Score Affects Loan & Credit Card Interest Rates?

Your credit score plays a key role in determining your interest rates on loans and credit cards.

Key Takeaways:

750+ Credit Score → Lower interest rates, easy approvals, and premium benefits.

Below 650 Credit Score → Higher interest rates, strict eligibility, or possible rejection.

A good credit score can save you ₹1-2 lakh in loan interest over time.



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Common Credit Score Myths & Misconceptions

Myth 1: Checking Your Credit Score Lowers It

✅ Truth: Checking your own credit score (soft inquiry) does NOT affect it. However, multiple loan applications (hard inquiries) can lower your score.

Myth 2: A Higher Income Means a Higher Credit Score

✅ Truth: Your income level has no direct impact on your credit score. The score is based on repayment history, credit utilization, and loan behavior.

Myth 3: Defaulting on Small Loans or EMIs Doesn’t Matter

✅ Truth: Even missing a single EMI can reduce your credit score and affect future loan approvals.

Myth 4: Taking Multiple Loans Improves Your Credit Score

✅ Truth: Taking unnecessary loans increases debt and financial risk, which can lower your score.


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Final Advice:

Always pay EMIs and credit card bills on time.

Keep credit utilization below 30%.

Avoid frequent loan applications.

Regularly check your credit report for errors.


"Be Financially Aware"