Maintaining a good credit score is crucial as it pays off while applying for loans. This number is a universally trusted indicator of financial health and assures the lender of your capability of timely repayment of the loan. A good credit score will be helpful while taking important decisions in your life that require a significant investment. But how will you know what your credit score is? In this article, we will take you through the process of checking your credit score.
See also: What is CIBIL score and how does it impact a borrower?
How is credit score calculated?
Several factors are taken into consideration while your credit score is being calculated. While the weightage assigned to each of these factors might differ from organisation to organisation (CIBIL, Equifax etc), the factors largely remain the same. Here are the factors that you need to keep in mind:
Payment history
The most important factor that determines your creditworthiness is whether or not you have a history of timely repayment of credit. Paying your credit accounts on time has a positive impact on credit score while late payments, defaults and bankruptcies can impact it negatively.
Credit utilisation
Credit utilisation refers to the ratio of your current credit card balance to the credit limit set on your card. A low ratio implies that you use a small percentage of your available credit, making it a favourable aspect while determining your credit score.
Length of credit history
This refers to the total time period you have had credit accounts in your possession. It considers the age of your oldest and newest accounts and the average age of all your credit accounts in general.
Types of credit in use
Credit accounts are of different types, such as credit cards, mortgages and accounts for the purpose of loan instalments. If you have a mix of different types of credit accounts, it is considered a plus while determining your credit score.
New credit
This factor takes into consideration the accounts you have opened recently and latest inquiries into your credit report. Opening multiple new credit accounts in a short period or having several recent inquiries is perceived as risky behaviour that impacts your creditworthiness.
How to check your credit score?
You can easily check your exact credit score through both online and offline means to determine your creditworthiness. Here are the steps you will have to follow:
Online process
Credit scores are provided by specific credit bureaus that are widely trusted by lenders. Research about the bureaus and choose which one suits you best. CIBIL, Equifax and Experian are some of the popular credit scoring bureaus. Once you choose a bureau, visit its official website. Here, you will be required to create an account by entering your personal and contact details and setting a username and password.
The bureau will require you to verify your identity before proceeding. For this, you might have to provide your PAN details, Aadhaar number or uploading identification documents. After your identity has been verified, you can request the required service, i.e. information about your credit score by paying nominal charges, if any.
Once you receive your credit report, go through every detail carefully and check for discrepancies. The reports come with a detailed analysis of each factor and how it influences your score. Carefully review the problem areas to figure out where and how you can improve your credit score.
Offline process
If the online process seems complicated, you can always resort to the traditional offline process of getting to know your credit score. The simplest way to do this is by approaching your bank. You can contact your bank’s customer service or visit the nearest branch to know the steps of checking your credit score.
You can also request a physical copy of your credit report from the preferred credit bureau instead of an online one. This report is similar to the one you might receive online with detailed analysis of your credit history and factors influencing your credit score. Additionally, you can approach your financial advisor to determine your credit score and provide recommendations as to how you can improve it. Such professionals have access to proper resources to evaluate your creditworthiness.
FAQs
Why is the credit score important?
The credit score is used by lenders to evaluate the risk of lending you money by checking your financial health and history. A higher credit score means better loan terms and favourable interest rates.
How is credit score calculated?
Credit scores are calculated by taking into account your history of loan repayment, credit utilisation, length of credit history, types of credit in use and new credit.
Where can I check my credit score?
You can get a detailed credit report through credit bureaus like CIBIL, Equifax and Experian or by contacting your bank.
How often do I check my credit score?
You can ideally check your credit score once every year. However, in case of any major financial decision in the pipeline, consider doing periodic checks more often for greater accuracy.
What is the difference between credit score and CIBIL score?
CIBIL is one of the credit bureaus that provides you a credit score between 300 - 900, indicating your creditworthiness. However, credit score is a broader term that is an indicator of your creditworthiness and can be obtained from any financial or credit institution.
How can I improve my credit score?
Paying bills on time, reducing balance on credit cards and avoiding opening multiple bank accounts in a short timespan can significantly improve your credit score. It is also important to maintain a healthy credit mix and have old and trusted accounts.
How long does negative information stay on my credit report?
While negative information stays on the report for several years depending on the severity of the default (late payments, bankruptcy etc), their impact on your credit score reduces with time provided proper steps are taken to improve the score.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
