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What is a good credit score and how you can maintain it to stay on the right side

A low credit score is a symptom of habitual defaults and an indicator of financial indiscipline.

November 30, 2018 / 05:08 PM IST

Hrushikesh Mehta

Your credit score is a number ranging between 300 and 900 and is derived from your credit report. Credit reports are created by credit bureaus like Experian and CIBIL. Your credit score and report are used to make decisions about whether or not you get access to a number of things.

These include:

1. Lenders - who use this to evaluate your loan and credit card applications. Not only can your applications be processed faster with a high credit score, but also, lenders have started providing loans at lower interest rates.

2. Mobile phone service providers - who set postpaid limits after all post-paid services are a form of credit extended to you.

3. Insurance companies – who decide whether you can get lower premiums should you choose to buy any policy.

4. Employment screening – Many employers have started reviewing credit scores and reports as part of an employee’s background check. A low credit score is a symptom of habitual defaults and an indicator of financial indiscipline. It must be said, that no one can claim to go through life without going through periods of financial stress, so if you have missed payments for a short period and you have returned to paying on time later this will not pose a problem.

Given that your ability to buy a home, emergency medical expenses (via a loan or insurance reimbursement) and even the ability to secure employment are dependent on this three digit number, the next question is what is considered a “good” score.

First, it is important to know that all credit bureaus have the same data since 2015.

Hence, all credit bureaus can provide you with an accurate score.

Second, all the bureaus have a credit score that ranges between 300 and 900. If you do not have any loans or credit card you will not have a credit report and hence, a credit score.

Lastly, while all the credit bureaus have the same data, their scoring algorithms differ slightly and hence, each credit bureau will have a slightly different benchmark of what is considered a “good” score.

In Experian’s case, a credit score of 780 or more is considered a good score. In CIBIL’s case, it is 750 or more.

Here are few tips to help you maintain a high credit score:

1. Always, always, always… pay your dues on time. Late payments are the biggest factor that affects your credit score.

2. Don’t use too much credit. Make sure your monthly outflows are less than 50% of your net monthly income. People who have increasing credit utilisation are viewed negatively by lenders.

3. Check your eligibility before applying for credit on lending marketplaces. A number of “hard” enquiries (a credit search is added to your report every time you apply for credit) within a few months can be a reason for your score reducing and your loan getting rejected. When you check your free credit score and eligibility on lending marketplaces this is called a “soft” search and doesn’t affect your credit score or credit eligibility.

Given how important your credit score and report can be and the fact that it is easily available and that it can be tracked free and forever - there’s no reason you shouldn’t check your credit score.

The writer is Country Manager – India of

Moneycontrol Contributor
Moneycontrol Contributor
first published: Nov 30, 2018 05:03 pm