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A person’s credit score is a number that banks and other lending institutions use to ascertain their “creditworthiness.” This number is usually between 300-900, and it depicts the individual’s ability to repay borrowed credit, like loans.

In India, there are four credit information bureaus licensed by the RBI that calculate this credit score – TransUnion CIBIL, Experian, CRIF High Mark, and Equifax.

Banks and other financial institutions use credit scores to determine a person’s “creditworthiness.” This just looks at their ability to repay borrowed credit, such as a loan. These lenders use a person’s score to decide whether they will approve their applications for a loan or credit card, and to avoid situations of bad debt or fraud.

Since every lending institution has their own risk grading, it is important to have a high (or good) credit score. For example, one bank may consider a score above 700 to be good, while another bank may prefer a score above 750.

Different lenders may also place more emphasis on different aspects of your credit score, such as your credit utilization, or your payment history. Thus, in general, a score above 750-800 should be considered good in most situations.

When you have a higher credit score, it means that you have demonstrated good credit behavior in the past. This means that potential lenders might have more confidence in approving your credit requests. You might also be able to get other benefits, such as lower interest rates, better terms of repayment, and a quicker loan approval process.

Thus, having a good or high credit score can help you get your credit applications approved, while a bad or low credit score can contribute to your loan and credit card applications being rejected.

Once you know about the factors that affect your credit score, it can be easy to know what you can do to ensure that you have a good credit score. While it may take time and effort to improve your credit score, developing the following responsible habits now can help you in the long run:

• Regularly access your credit score and credit report. This way, you can keep an eye on your score and understand what needs to be done to improve your score.
• Pay your bills and EMIs on time. Having a good and timely payment history is a very important factor in improving your credit score.
• Complete your outstanding payments. If you have any outstanding payments that are past their due date, pay them as soon as you can, as the later a payment is, the more it can impact your score. To avoid such mistakes in the future, consider setting up reminders or alarms, so you don’t forget.
• Try not to use too much of your credit limit. Keep your credit utilization low to show any potential lenders that you're not too dependent on credit. Try to keep it under 30%—for example, if your credit limit is ₹10,000, try not to use more than ₹3,000. If it is not enough for your needs, consider asking your card issuer to raise your credit limit, or opt for a second card.
• Limit any new credit requests. Try to limit the number of times you apply for new credit (such as new credit cards, loans, etc.). These are known as “hard inquiries” and they credit reports for two years, though their impact on your scores fades over time.
• Check your credit report for any inaccurate information. Regularly see if there is any inaccurate information on your credit report, as your scores could suffer because of. If you find any mistakes or errors, raise a dispute as soon as possible, so it is rectified.

While there are many factors that affect a person’s credit score, there are also a number of factors which play no significant role in calculating a credit score. These include:

• Your account balance – A person’s credit score and report uses details related to their loan and credit card information, rather than the amount present in their account.
• Your investments – While getting a number of loans or credit cards you have can affect your score, the number of investment policies does not affect your score in any way.
• Your income, occupation, or employment history – Where you work and how much you make has no impact on your credit score, as it is calculated based on how many credit lines you have and how well you manage them. This information may just be used for identifying purposes on your credit report. (However, keep in mind that some lenders may still consider this information relevant while making decisions.)
• Where you live – Even though your address may be mentioned in the credit report, the city, state, or type of accommodation you have has no impact on your credit score.
• Payment of utility bills – Your utility payments, like rent, or phone, electricity, water, and internet bills (however promptly and regularly they are paid) usually do not have an impact on your credit score. However, there are some alternative credit scoring models that factor in utility payments for those without a traditional credit history, but most are yet to take off in India.
• Your age and demographics – No matter how old you are, your education level, religion, and various other demographic factors do not affect your credit score.
• Your marital status – A person’s marital status has no bearing on their score, as credit scores are determined based on a person’s individual financial behaviour. Additionally, having joint bank accounts will not change your credit history and score.
• Debit card usage – Since a credit score is connected to a person’s credit usage, debit card transactions do not have any influence on your credit score. This is because when you use a credit card you are essentially borrowing money and paying it back later, while using a debit card is just spending your own money. In the same way, payments via cash or cheque also have no impact on credit scores.
• Rejected credit applications – Even if you have applied for a loan or credit card in the past and been denied, it will not impact your credit score. However, the request for credit itself is a “hard inquiry” which can impact your credit score.
• Soft inquiries – Unlike “hard inquiries,” soft inquiries are when you check your own credit report, or inquiries by others (like your bank conducting reviews of your credit accounts). These inquiries do not impact your credit score.