What is a Credit Score? | Definition, Check Score, Maintaining Good Credit Score

A credit score is based on analysing a person’s creditworthiness derived from a credit report. It is a numerical expression based on the information gained from the credit bureau.

Credit Card companies, banks and other potential lenders use credit scores. They perform a lender’s role, and before lending money to the borrower, they use this credit score to determine the risk of facing a Bad Debt in future.

These scores tell the lender whether the borrower can repay the money on time. And also whether the borrower will bring good revenue to the organisation. This also plays a critical role in determining the credit amount, period, interest etc., that would be sanctioned to the borrower as a loan.

Key Takeaways

1. A credit score is a numerical representation of an individual’s creditworthiness.
2. It is calculated based on various factors such as payment history, credit utilization, and length of credit history.
3. A higher credit score indicates better creditworthiness and increases the likelihood of obtaining credit at favourable terms.

How to check a credit score and know if it is good or not?

Usually, credit scores vary from 300-850. And a credit score ranging between 550-700 is said to be a fair score. But a score lying between 700-900 is considered the best. The math is pretty simple. Greater the credit score, the greater the creditworthiness. Hence, a higher chance of getting the loan.

Three top credit bureaus are used to check the credit score; Experian, TransUnion CIBIL and Equifax. In India, TransUnion CIBIL is the most popular one. You can get your credit score by visiting their website and paying a prescribed amount. This fee differs with every bureau. But as per the guidelines given by RBI, you can get a free credit report and score between January-December. Although, only once a year can you get this free report.

Ways to maintain a good Credit Score

It is very important to have a good credit score to increase the chances of getting a loan from the lender. Here are some best ways to maintain a good credit score.

1. Maintaining Credit Discipline

Credit Repayment must be exercised in a disciplined manner. So you must pay your Credit card bills and EMIs on time. You can set reminders or a system where your bills are automatically paid on the due date to meet the deadlines and maintain credit discipline.

2. A good history

A borrower who always pays his credit bills on time will always have an increased advantage compared to a person who has not taken any credit before and has no credit score to show. Create a good credit history by exhibiting a good record of clearing dues and credit repayments, including long- and short-term loans.

3. Joint Accounts

It doesn’t matter whether the account is a joint account; exercising a disciplinary way to make the repayments and pay the EMIs is still important. The account holders equally share the responsibility to repay on the specified time. Having another member’s presence in the account cannot be used as an excuse for the delayed due payments. This will affect your account holder’s credit score.