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11/08/2023

Baking Up a Good Credit Score: Chasing the Mythical 850

Team Niyo

Helping you save more

Overview

A good credit score acts as a key that unlocks doors to various opportunities, such as securing loans, credit cards, and even favourable interest rates. The CIBIL score range is from 300 to 900, where 900 deems you to be maximum creditworthy. However, a good credit score can even be anywhere above 650. Along with explaining what is considered a good credit score, it is crucial to understand why it is essential.

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Overview

Team Niyo

Helping you save more

Introduction

If a stranger walks up to you and asks to borrow some money, even the best of us hesitate. What do they need it for? How do we know they’ll repay us? Have they borrowed money in the past? Do they have a history of giving it back?

Banks think similarly when we approach them for a loan. When handing out large sums of money to someone, they need a system to measure that person’s trustworthiness. Your credit history is recorded in the Credit Information Report (CIR), where your trustworthiness of loan repayment is given a CIBIL score.

CIBIL stands for Credit Information Bureau (India) Limited. Having a good credit score is crucial when applying for loans, credit cards, or other forms of credit. A higher credit score increases the likelihood of getting credit approval and enables borrowers to negotiate more favourable interest rates and terms.

Your credit history, repayment behaviour, credit utilisation ratio, credit inquiries, and the types of credit you have used are some of the factors that influence your credit score in India. Maintaining a consistent record of timely repayments and responsible credit management is essential to achieve and sustain a good credit score. Regularly checking your credit report and rectifying any errors can also contribute to maintaining a healthy credit profile.

Let’s Breakdown the Best Credit Score Range

If you’re wondering, “What is a good credit score, and how do I get that?” hold your horses because you need to understand what they calculate to get your credit score in the first place.

Your creditworthiness, measured as your credit score or your CIBIL score range, is calculated based on:

Your payment history
How long was your past credit period (credit length)
How did you use your loan (Credit utilisation)
Credit mix
New credit

A normal CIBIL score range is between 300-900, but the best credit score range is between 650-900. So if you’re anywhere above 650 and you’re wondering, “is 700 a good credit score?” yes, it is!

What is the CIBIL Score Range, and how am I doing?

You can’t escape being marked and evaluated, even in adulthood. CIBIL score range is between 300-900, but each stratum of this range determines if you have good or bad credit.

CIBIL SCORE	RATING
300-499	Poor
500-649	Average
650-749	Good
750-900	Excellent

Four approved bodies under the RBI collect and hold credit information that determine what is a good credit score:

CIBIL: One of the oldest and most widely used. Scores range from 300-900.
EQUIFAX: Relatively new. Scores range from 1-999. Offers additional support like risk, fraud and portfolio management.
EXPERIAN: Customer-service-oriented credit company. Scores range from 300-900.
HIGH MARK: Offers services like geo-analytics consulting. Scores range from 300-850.

As this evidently points out, CIBIL isn’t the only way to calculate your credit score. So what is the difference, and exactly what is a good credit score?

How Witchcraft and Wizardry is a study programme, and Hogwarts is just one of the schools that offers them (the best one, but yes). Similarly, a credit score is the total value of a candidate’s creditworthiness, whereas CIBIL is one of the authorities to calculate that worthiness. Here are the key differences:

Criteria of difference	Credit Score	CIBIL Score
Meaning	The overall score of a person’s creditworthiness. It is determined by several criteria like credit history, loan period, etc.	The creditworthiness score determined by the Credit Information Report (CIR)
How it’s calculated	An accumulation of the report of a person’s credit history, repayment period, new credit, credit mix, utilisation, etc	An accumulation of other credit reports of that individual.
Credit Range	Range varies according to the bureau used to measure	300-900
Authority	Varies according to the country	CIBIL

How do I Retain a Good Credit Score Range?

Your credit score is an aggregate of a few factors:

Loan history: 35% of your score
Credit length: 15% of your score
Credit utilisation: 30% of your score
Credit mix: 10% of your score
New credit: 15% of your score

Having a high credit score is not like having high Snapchat streaks – the numbers actually mean something and can make a huge difference to your finances.

Here’s what the best credit score range can get you:

Lower interest rates on your subsequent loans
Quicker loan approval with lesser hassle
Possibilities of getting a pre-approved loan
Long-term loans get approved
Benefits to your credit card, such as higher credit limit and reward programmes
Higher credit scores portray good credit management and responsibility, which gives you tons of brownie points on your job application or for your rental agreement.

How to Stay on Top of Your Credit Scores

Your credit score is like your report card, but unlike your report card, it can’t be altered by imitating your teacher’s handwriting or copying your parents’ signature. It is stored with a credit bureau like CIBIL and can be accessed by lenders to assess your creditworthiness. To access your credit report in CIBIL, follow these quick steps:

Go to the CIBIL website
Hit the bright orange ‘Get your CIBIL score’ button
Type in the personal details they ask for (like your name, email, phone number, etc.) and upload essential identity documents (like your Aadhaar, passport, PAN, etc.)
Once that’s done, hit ‘Accept and Continue’
Enter the OTP that comes to your mobile number
Click on ‘Go to Dashboard’, and it’ll redirect you to myscore.cibil.com
Log in and view your generated credit score

The process is similar if you have chosen any other bureaus like Equifax or High Mark. You may even use third-party websites to check your credit score (like FitCredit, Cred, PayTM, INDmoney, CreditKarma, etc.) Pro Tip: Be sure to check the accuracy of your credit score in case of any fraudulent, incorrect or suspicious activity on your credit.

Building and Improving Your Credit Score

Although your credit score is quantified, what is considered a good credit score is following these credit habits:

A healthy mix of credits in your history (alternates of long-term, short-term loans, big loans, and daily credit card loans, etc.)
Fast repayment of credit bills
Being a co-applicant to guaranteed repayers only
Avoiding multiple parallel loans
Have a lower credit utilisation ratio (spend less than your credit allows you to)
Tracking and monitoring your credit dues

If you’re starting out on building your credit, here are some tips that will eventually get you to what is a good credit score:

Apply for a credit card: a small but effective way to start your credit history
Use the card regularly and build your credit score
Be prompt and diligent in your payments
Pay your EMIs on time and in full
Track your Credit Utilisation Ratio and keep it low

Common Credit Score Myths

When you try to understand “What is a good credit score”, steer clear of the WhatsApp-forward level myths that surround building a good credit score range.

Frequently checking my credit lowers my credit score

Simply untrue. Checking your score, especially from an authentic credit bureau website, does not affect your credit score in any way. It is safe and even wise to monitor your scores.

My salary impacts my credit

Unrelated. Your salary or income might show your capacity to repay but not necessarily your creditworthiness.

Only the rich have what is considered a good credit score

This is like saying all fancy restaurants have great food (so not true!). A good credit score means you’re a reasonable risk to loan money to, irrespective of your economic status. It’s a mark of your diligence than your dough (money).

Only 850+ credit scores get any real benefits

Nope. While we can’t deny the advantage of being in the 850+ credit score club, if you can get yours to 750+, you still unlock most of the advantages of having what is an excellent credit score.

Building credit is for growing old

Not really. You can start building your credit at 18 years old and keep strengthening your profile for you to make any milestone purchases such as a house, car, paying for education, etc.

My boss can see my credit scores

Nah, they may have access to your financial history to check for distress, but not your actual score. That’s only for lenders.

I can merge my credit score with my spouse’s when I get married

You can merge your name, home, and even your personality with your spouse, but not your credit scores. Your credit score is just yours!

To Wrap Up!

Before you skip off to buy your dream home or car on loan, here are some parting tips:

Start young and build a good credit history
Keep a check on your credit score
Repay your loans on time
Always strive to boost your credit score by being proactive

Best of luck!

Frequently Asked Questions

1. Can I have more than one credit score?

Yes! In fact, lenders analyse multiple types of credit scores that you have accumulated to identify if you meet what is a good credit score.

2. How often should I check my credit score?

Check your credit score at least once a year. But the recommended frequency is once every four months (or quarterly).

3. Can my credit score change over time?

Yes! Your credit scores have the potential to increase or decrease based on your credit activity. It is usually updated every month, but it can be updated more frequently depending on your credit usage.

4. Are there different credit score ranges for different credit bureaus?

Yes. Here is the range of credits among common bureaus in India:

CIBIL: 300-900
EQUIFAX: 1-999.
EXPERIAN: 300-900.
HIGH MARK: 300-850

5.How does my credit score affect my ability to get a loan or credit card?

Since your credit score is a reflection of your ability to repay a loan, it is a mark of trustworthiness. A higher score (650+ CIBIL score) is more likely to get you long-term loans and lower interest rates than a lower credit score (300-550).