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What is a Credit Score?

A credit score is a measure of a person’s creditworthiness. It’s a numerical figure that falls in the range of 300-900. The credit score is useful while ascertaining the ability of the person to repay the borrowed amount.

The government calculates credit Scores using authorized agencies. It depends on various factors like repayment records, length of credit history, inquiries made for credit, etc.

Whenever you apply for a loan or a credit card, the concerned entity verifies your credit score and takes a decision based on it. Higher credit score entails benefits such as credit cards with a higher limit, large loan amounts, and low-interest rates.

Range of Credit Scores

A credit score lies between 300-900. A higher credit score ensures you do not face rejection while applying for loans or credit cards.

NA

NA is for the person without any credit history.

300-549

A credit score in this range indicates that you have a bad credit record. It suggests that you have a terrible reputation in credit, such as being a defaulter of loans and credit cards.

550 - 649

A score in this range suggests that you have an average credit score. You need to take steps to improve your credit score to increase your chances of availing loans or credit cards.

650 - 749

While this is usually a good credit score, you may not get the opportunity to negotiate terms with the lender with this score.

750 - 900

A score within this range is excellent. It suggests that the borrower is trustable when it comes to credit issues. Individuals in this range can get the best offers on loans and several other financial instruments.

Companies computing the credit score

RBI authorizes Credit information companies to compute your credit scores. In India, four companies compute your credit scores. CIBIL, Experian, High Mark, and Equifax are the companies that are calculating your credit scores.

Banks send the transactions that you make which are pertaining your credit score to all these four bureaus. These companies have an up to date record of your transactions. If a bank needs to verify your credit score, they can contact any of these four bureaus. The scores are equal in each of your companies as they follow the same guidelines to calculate your score. 

After receiving the information about transactions from banks, these bureaus collect more information about financial habits from other banks and financial institutions. Based on this information, they generate a credit report. A credit report is an equivalent of a mark card. In simple terms, a credit report is your financial mark card.

Factors influencing the credit score

Credit information companies calculate the Credit Score of an individual after taking into consideration several factors. Payment history, repayment behaviour, types of credit, and the tenure are some of the factors that have a say on your credit score. The financial institutions from where you are transacting send your monthly details to these bureaus. Every company has its methodology of calculating these scores.

  • Payment History – Non-payment of credit card bills and EMIs can negatively impact your score
  • Credit Accumulation – If you are continuously delaying payments to your credit cards or loans, it will severely impact your credit score
  • Age of the credit – A long credit history lends an advantage as it better insights about your repaying capacity
  • Types of credit – It is good to have the right mixture of secured and unsecured loans

Importance of Credit Score

A credit score will help you gauge your chances of getting credit. Also, a timely check of credit scores will help you notice a dip or any discrepancy in it, due to computational errors. Once you identify a difference in the report, you can always take steps to make it correct.

Benefits of a Good Credit Score

There are multiple benefits to having a good credit score. Listed below are some of the benefits

  • If you have a good credit score, your chances of getting a loan are high
  • A good credit score can improve your chances of getting the best credit card with multiple benefits
  • Having a good credit score helps you avail loan at lower interest rates
  • Approval process for a loan or credit card is quick for a person with a good credit score
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Information in a Credit report

A credit report determines a person’s credit history. The credit report contains details of your credit accounts like credit cards, loan history, transaction details from a government registered entity. It will also contain statements about your payment history, account balance, and credit limit. A credit report will essentially include these details:

It contains information about your name, address, and date of birth. In the event of any mistakes like misspellings or wrong update of address and DOB, the user must contact the agency to rectify the mistakes.
This section contains details about the person's credit history. Following details are present,

∙ Creditor
∙ Current Balance
∙ Monthly Payment History
∙ Account type
∙ Payment status
∙ History of Credit limits
It indicates the list of bankruptcies filed by the person and also the tax liens of the customer.
Here, the number of inquiries made to know an individual's credit score is displayed. A higher number of inquiries can negatively impact a person's credit score.

Why are Credit Reports used?

privacy

It is used to determine a person's creditworthiness

transparency

To know the credit score of a person

Knowledge

To take effective decisions on providing further credits

income-of-applicant

Reviewing missed or late payments

hight-cost

To analyze the credit history of an individual

Checking your Credit Score at FinCover

At FinCover, we firmly believe that every individual must have better control over their finances. One way of achieving this would be to make them know their credit score. Knowing your credit score helps you take sound financial decisions.

If you have a good credit score, then you have a fair chance of getting the best loan offers at attractive interest rates. Also, whenever you apply for a credit card, you can get the most beneficial cards. Hence, knowing your credit score helps you a great deal whenever you apply for a financial product. Take steps to improve your score if the score is not in the respectable range.

Credit agencies review your credit scores periodically. If you have a low credit score, make sure you pay/settle your dues as soon as possible. Seeking for credits with a lower score will further lower your credit score.

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How to obtain your credit score online?

If you want to view your credit score, you will have to furnish a few details as given below

  • Name
  • Mobile No
  • Email ID
  • PAN card Number
  • Authenticate your identity with OTP