Credit score: What are the different models to calculate? 4 key factors that influence it?

Two important resources for managing your own financial affairs are your credit score and your credit report. But the landscape of credit scoring can be a bit confusing given the many forms of scores and reports that are out there. The many varieties of credit scores and reports are outlined in this article along with their significance and how knowing them can help your money management skills.

What is a credit score?

A credit score is a three-digit figure that can be calculated from data obtained from your credit history. Some of the elements include repayment history, number of credit accounts, and overall debt. These are some of the credit factors, and the bureaus check all of them to decide whether the individual is credit-worthy or not.

Which credit-scoring models are there?

There are four major credit bureaus, namely CRIF High Mark, Equifax, Experian, and CIBIL that have been authorised by Reserve Bank of India (RBI) to calculate credit scores. Proprietary algorithms used by each agency also result in relatively small differences in the outcomes from different agencies. All four credit agencies give reliable credit scores.

What are the different types of credit score?

Let's look at the various credit score models rating companies use:

1. CRIF High Mark: A score of 750 or above is considered good. The CRIF High Mark Score ranges from 300 to 900. This score is based on a person's credit history, which includes credit card usage and loan repayments.
2. CIBIL: A CIBIL score of 750 or more is considered good; it also ranges from 300 to 900. It is based on a person's financial history, which includes credit card use, loan repayments, and other financial transactions.
3. Equifax: Another score model currently used in India is Equifax Score. It is between 300 and 900, with any score above 750 considered good. In appraising the creditworthiness of a person, it has his history of credit.
4. Experian: This score ranges between 300 and 900, in which 750 is an excellent score, just like the others. A person's score is determined by how he uses his credit card and how well he repays his loans.

Credit score range

Elements that affect credit score

• On-time payments: Paying all EMIs and bills on time reflects good money management and helps increase credit scores.
• Credit utilisation: A good credit manager keeps credit card balances and loan EMIs within acceptable limits.
• Length of credit history: A longer credit history builds lender confidence and provides a more solid basis for judging creditworthiness.
• Credit mix: Maintaining different types of credit accounts, such as both secured and unsecured loans, depicts maturity and stability in finances.

In conclusion, it calls for understanding the different credit reports and ratings to make smart financial decisions. You can spot any errors and monitor your credit-building journey, being ahead of the game in increasing your score by regularly reviewing your credit reports. Other than boosting your financial profile, a healthy credit score keeps you ahead with regard to obtaining future loans and good terms on credits.