What your credit score reveals about you
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What your credit score reveals about you

  • Highlights

  • Your credit score reveals your ability to repay borrowings

  • With a score up to 560, lenders consider you a high-risk borrower

  • If your score is up to 650, you need to manage finances better

  • A score of 750+ can get you a good interest rate on loans

The way you maintain your credit score creates a perception about you in the financial world. The activities through which you manage your credit and debt determines whether your application for credit (or loans) in the future gets approved or rejected and also the interest rate you are liable to pay. Your personality and behaviour are constantly assessed when it comes down to credit. While there are numerous credit rating agencies who assign you a score based on your credit history, CIBIL is one of the most common and widely used.

CIBIL assigns you a score from 300 to 900, based on factors like:
- Your timeliness with repaying credit in the form of EMIs or credit card bills
- Your credit utilisation ratio, when it comes to your credit card limit or loan vs income
- The number of times you have applied for credit in the recent past and been rejected or approved
Here’s how your credit score defines your financial habits and how you can proceed from one category to the next.

1. The newbie

Credit score: 300 - 560
With a credit score in this range, lenders will usually not entertain your application for a loan or credit. You may have this score simply because you have not taken any credit in the past or have just started working and are using a credit card or taking on debt for the first time. You may also have a score like this when you have made too many enquiries for credit in quick succession at the start of your career without any real credit history.

How to improve your credit score
To boost your score, take on a small debt like a collateral-free personal loan and repay it with regular and timely EMIs. Use your credit card with care, paying off more than the minimum balance. Take care not to use up your entire credit limit. Keep your utilisation to 30% for best results and you’ll see your score increasing.

2. The ambitious borrower

Credit score: 561 - 650
With a credit score in this range, lenders are sure to perceive you as a new kid on the block. You may get a loan but at an exorbitant rate of interest as you are viewed as a credit risk. You may also not receive any pre-approved credit card or loan offers. This credit score reveals that you have not been timely or responsible with credit in the past. It may mean that you have been rejected for applying for a loan or have made too many enquiries for loans without proper financial planning or forethought. It may also mean that you have not experienced job stability or have switched jobs too quickly to be considered a reliable borrower.

How to improve your credit score
To step into a safe zone, increase your credibility by planning your expenses better and clear your dues before the given date. Make use of the eligibility calculator for loans before you apply to ensure that you qualify. Also ensure that you do not apply for credit frivolously or for unimportant desires. If you have multiple credit cards, pick two or three that offer you better rewards, and use them with care, paying off the total balance without incurring additional interest. A little financial planning can help you move from this score bracket into a more respectable one.

3. The moderately disciplined spender

Credit score: 651 - 749
If your credit score is in this range, you are almost at the stage where lenders look upon you as a trustworthy and creditworthy applicant. This score reveals that you have built a credit history, taking on unsecured as well as secured credit. At this stage you can get a loan or avail credit at a decent interest rate, but may not be awarded a high credit limit. This could be influenced by a number of reasons, the most important being your income and money management. You may also be getting some pre-approved loan and credit card offers, but before jumping on the bandwagon, continue to plan your finances with care.

How to improve your credit score
By following the 30% credit usage rule, you will see an increased amount of faith from creditors. This translates to a higher credit limit for you and even better interest rates over time. Continue to use your older credit cards wisely before taking on new cards, and keep your EMI payment regular. Look for loan options like a Flexi Loan facility, which allows you to manage your cash flow better.

4. The dependable finance whiz

Credit score: 750+
With a score of 750 or higher, you are looked upon as someone who has mastered the art of credit utilisation and financial management. If you have a credit rating this high you could give out advice to your peers on how to manage their funds! At this stage, you are not considered a credit risk and your loan applications get approved with ease. More importantly, you get the most competitive interest rates from lenders. You will also receive a bevy of pre-approved offers from credit card issuers and lenders, but to maintain the score, ensure you pick and choose every offering carefully. Continue to use the EMI calculator to plan your repayment.

How to maintain your credit score
Getting on top is easy; staying on top is the challenge. So, make sure you borrow only as much as you need rather than opting for a credit loan amount just because you have been offered one. Ensure that you keep separate savings for repayment, as a dip in your score is possible when you face an emergency or due to unforeseen problems in your income.

Now that you know what your credit score says about your behaviour when it comes to personal finances and credit utilisation, work on improving it or maintaining it. It is worthy to note that acting as a guarantor for someone who defaults on their payment will also hurt your credit score. So, become a co-signor with careful thought and boost your score following the tips mentioned above. With a good score, you can save more money on loans and credit cards and be well on your way to financial independence and security.

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