Rising credit score awareness in India and what it means

Access to personal loans and credit cards has significantly increased in recent years with the emergence of tech-driven digital lending platforms. With the availability of a wide range of credit facilities across categories to meet the needs of customers from all income groups, availing a loan or credit card is no longer difficult. While the consumption of credit products is rising, borrowers should assess their repayment capacity regularly to avoid any default situations. Most digital lending platforms finalise loan applications based on two important factors— credit score and the income of the borrower. A good credit score helps people get loans more easily with lower interest rates. With the rising awareness about credit instruments and financial products, it’s important to be careful to maintain a high credit score.

Rising credit score awareness in India: Key Trends

According to a report by TransUnion CIBIL, the awareness about credit score has significantly increased among users with nearly 51% year-on-year growth in FY24. Notably, 81% of the consumers from non-metro cities starting monitoring their credit score within 6 months of getting their first credit product.

The report also reveals that users who monitor their score have an average credit score of 729 while those who don't have their average at 712. Moreover, 46% of those who self-monitored their scores improved their credit score in six months, compared to 41% of users who didn't.

Overall, the findings underscore the rising credit score awareness in India and its positive impact on financial behavior.

What is a Credit Score?

A credit score is a three-digit numerical representation of an individual's creditworthiness. This helps financial institutions assess the likelihood of a potential borrower’s loan repayment capacity. Ranging from 300 to 900, a higher credit score indicates a better credit history, making it easier to get loans and credit cards with favourable terms.

Credit Score Categories: 

• Poor (300-579)


• Fair (580-669)


• Good (670-739)


• Very Good (740-799)


• Excellent (800-850)

However, these credit score ranges and classifications may differ depending on the criteria of the credit bureaus. In general, a credit score of 700 or above is always preferred by lenders.

You can check your credit score for free via the Moneycontrol app and website. Moneycontrol also offers loans up to Rs 50 Lakhs in partnership with eight lenders. The loans can be availed at an interest rate starting at 10.5% per annum in a completely digital process.

Key factors that affect your credit score

• Payment History: Timely repayments on loans and credit cards significantly boost the score.


• Credit utilisation: Using a large portion of your available credit can lower your score.


• Credit history length: A longer credit history helps build a stronger score.


• Types of credit: Having a mix of credit accounts, such as credit cards and loans, can be beneficial.


• Recent credit inquiries: Too many inquiries can suggest potential financial stress, lowering the score.


• Errors in credit report: Errors and discrepancies in your credit report could also negatively affect your credit score. If a loan closure or EMI payment has not been updated in the credit report, lodge a complaint with the credit bureau to rectify this error.

ALSO READ: Credit Report: A step-by-step guide to read credit score report in detail

How To Improve Your Credit Score?

• Pay your bills on time: Paying your bills on time is the most important factor in your credit score. Set up reminders or automatic payments to avoid missing due dates.


• Payoff credit card balances: Keep your credit card balances low. Pay off any existing debt and try to use less than 30 percent of your available credit. This helps improve your credit score over time.


• Keep your oldest credit account open: The length of your credit history matters. Keeping your oldest account open, even if you don't use it often, can help improve your score. However, this could be beneficial if you are not incurring high costs to maintain this account. This could only be suitable for credit cards.


• Mix different types of credit: Having a mix of credit types, such as credit cards and loans, can help your score. Don’t take on unnecessary debt, but having different kinds of credit can help build your profile.


• Limit new credit applications: Every time you apply for credit, your score can drop slightly. Only apply for credit when necessary to avoid lowering your score.


• Check for mistakes on your credit report: Sometimes, errors on your credit report can hurt your score. Regularly check your credit report and dispute any mistakes you find.

Credit Score and Personal Loans

Your credit score plays a crucial role in determining your eligibility and the terms of a personal loan. Lenders use credit scores to assess your creditworthiness, which helps them decide whether you're a low or high-risk borrower. Here's how your credit score affects your personal loan eligibility:

1. Loan Approval: If you have a credit score above 700, you're more likely to get quick approval for a personal loan. Lenders will view you as a low-risk borrower, which increases your chances of getting a loan at an affordable interest rate. On the other hand, if your score falls in the range of 650 or lower, you might still get approval for a personal loan, but the interest rates may go up.


2. Interest Rates: Generally, the lenders offer personal loans at lower interest rates to borrowers with healthy credit scores. The lenders view borrowers with high credit scores as less risky, meaning they are less likely to default on the loan. If your credit score is low, you may be offered a loan with a higher interest rate, as the lender considers you a higher-risk borrower.


3. Loan amount and terms: A higher credit score may also grant you access to larger loan amounts and more favourable repayment terms.

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Conclusion

To sum up, the rising awareness about credit facilities and financial services could be helpful in better management of personal finances. However, it’s advisable to keep a constant watch on your credit score and take simple steps to maintain a healthy credit profile.

If you are looking forward to checking your credit score for free, the Moneycontrol app could be a suitable option. Here you can check your credit score through CRIF Highmark, a leading credit bureau in India. Moneycontrol also offers personal loans up to Rs 50 Lakhs per annum in a 100% paperless process with interest rates starting at as low as 10.5% per annum. You can avail loans from eight lenders on a single platform through the Moneycontrol app.