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Different types of credit scores: What they mean and how to read them
Credit scores are vital in India for determining loan eligibility and interest rates. Knowing how to interpret these scores and the factors influencing them can help individuals make informed financial decisions.
To navigate the world of credit cards and loans in India it is important to understand your credit score. It is a three digit number that represents your creditworthiness, thus influencing loan eligibility and interest rates. Still, with multiple credit bureaus and scoring models this can be confusing.
Types of credit scores
In India, several primary credit bureaus are licensed by the Reserve Bank of India (RBI) to calculate credit scores. Each uses its own technology and algorithm to assess your credit behavior.
- CRIF High Mark Score: CRIF High Mark scores range between 300 to 900, using similar evaluation factors as the others. It is known for serving both urban and rural populations.
- Experian Credit Score: Experian provides for scores ranging from 300 to 900. It analyses financial health based on repayment history, debt levels, credit history length, and recent credit activity.
- Equifax Credit Score: Equifax provides for scores within the 300-900 range. It evaluates borrowers based on similar parameters, including repayment history, credit history length, and credit utilization.
- CIBIL Score: It ranges from 300 to 900. A score of 750 or above is considered excellent, while a score below 650 may make it difficult to secure loans or credit cards.
How to read your credit score?
Credit score is derived from several factors that determine how you manage credit. Here’s how to understand and interpret your scores:
- 300-579: This is a poor score. It is a score that indicates a high credit risk. Lenders may reject your loan or credit card application or offer you products with higher interest rates.
- 580-669: This is a fair score. A score here shows that you are somewhat of a moderate risk. You may still be approved for loans, but the interest rates might be higher than normal.
- 670-749: This falls under the good score category. A score in this range suggests that you are a relatively low-risk borrower. Most lenders will approve your loan or credit card applications. Your loan will be approved on standard interest rates.
- 750-900: This score falls under the excellent category. This is the ideal range for borrowers. A score above 750 indicates a strong credit history, making you eligible for loans and credit cards at the best terms and lowest interest rates.
Things to keep in mind
- Vigilantly protect your credit profile: Regularly checking your credit reports for errors or fraud is important. Consider addressing any queries, doubts immediately.
- Cultivate responsible credit habits: Keep your credit utilization low (under 30%). This can be done by always paying bills on time. Further, consider a mix of credit types to enhance your creditworthiness.
Conclusion
Therefore, it is crucial to understand how these credit scoring models work. This helps in sustaining healthy financial habits. By knowing the factors that influence credit scores, you can unlock better financial opportunities.
You can check your credit score for free here on Livemint.
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