How is Credit Score calculated and how to improve it ?

Today credit score popularly known as CIBIL score has now become important criteria to qualify for a credit card or loan. Credit score varies from 300 to 900. Lenders generally expect a score above 750. Score below 750 may not result in rejection of our application but you may end up being charged higher interest rate.

 

How is credit score calculated ?

Credit score is usually calculated based on below listed parameters.

 

  • Past payment history(Weightage 30-35%):If you have defaulted on your credit card  bill payment or loan repayment in the past then your credit score will be negatively impacted.

 

  • Credit Usage (Weightage 30%): If you are continuously maxing out your credit limit on your credit cards then it indicates that you are facing financial difficulties and will make lenders reluctant to lend you additional credit.

 

  • Duration of credit account (Weightage 10-15%): Age of oldest account ,age of newest account and average age of all account will be considered for your credit score. Longer the credit history a person has, better is the score.

 

  • Account types (Weightage 15%): Higher percentage of secured loans like housing and auto loans then unsecured loans like personal or credit card loans is favourable.

 

  • Enquiries for credit(Weightage 10%): If you make too many enquiries for credit card or loans then your score will be slightly affected. If you do not make any loan applications then you will not have any credit history.

How to maintain and improve your credit score ?
  • Make timely payment of your bills and loans.

 

  • Make full payment of your credit card dues before due date and do not move credit balance from one card to another.

 

  • Pay off your high debts.

 

  • If you do not have credit history then you can build one by getting a credit card. Make small purchases and do timely payments before due date.

 

  • Maintain credit utilization ratio below 30%.Credit utilization ratio is the amount you owe on your credit card to your credit card limit.

 

  • Request your credit card company to increase your credit limit this will help you to maintain low utilization ratio.

 

  • Do not close your credit card which you are not using as it will decrease your credit limit thus increasing your utilization ratio.

 

  • There are chances that you have settled your account but creditor has not informed the credit rating agency. Check your credit any errors and report it to concerned creditor for correction.

 

  • Many times individual stop using credit card but credit card company keeps charging them annual charges and this not payment of annual  charges reflects as default on your credit score. If you wish to stop using credit card then inform your credit card company of the same and take confirmation that no balance is due from your end.

     

     

     

How to check credit score ?

We have listed few agencies from whom you can get credit score.These agencies will charge you a nominal fee to provide you with credit report.

RBI has mandated every credit information company (CIC)  in India to release one credit report per year per customer free of cost starting from Jan 1 2017.