Everything you wanted to know about Credit Score
There are times when your credit score impacts your life in more ways than you realise. Therefore, it becomes important to know your credit score and how it is calculated. This will help you in maintaining a perfect score so that you can borrow at good rate and get loan for what you want.
What is credit score
Many of you might be under impression that credit score is same as credit report. Nonetheless, there is a difference. The credit score is a number that helps creditor to know, how likely you are to repay your debt. In case of credit report, it holds detailed story of your entire credit history and your current credit situation.
Factors that impact credit score
In India, a credit score is a 3 digit number that falls in the range of Rs. 300-900, 900 being the highest. Currently, CIBIL is the leading credit information company in India. The credit score is calculated based on following parameters.
Payment History: Whether you pay your bills on time or not. If you pay your bills on time, you will get better credit score.
Total Outstanding Debt: About 30 per cent of your credit score depends on the amount of debt you owe at the time the score is taken. Large outstanding debts will reflect on your credit report and will bring down your credit score, which will subsequently impact your eligibility for a personal loan or the personal loan interest rate you are offered.
Credit Types: Your credit mix such as personal loan, home loan or car loan determines your credit score. Having different types of debt can improve your score.
Length of Credit History: A higher credit history helps you to get better credit score.
Debt-to-Income Ratio: Your debt-to-income ratio is the ratio of outstanding debt in relation to your monthly income. The lower your debt-to-income ratio, higher will be the score as you are more likely to repay your debts.