Demystifying Credit Scores: Why Your CIBIL Score Matters

What is a Credit Score?

A credit score, often referred to as a CIBIL score in India, is a 3-digit number ranging from 300 to 900. It represents your creditworthiness. A higher score indicates a responsible credit history and makes it easier for you to get loans and credit cards.

Factors That Affect Your Credit Score

• Payment History (High Impact): Paying your EMIs and credit card bills on time is the most important factor.
• Credit Utilization Ratio (High Impact): This is the percentage of your available credit that you are using. Keeping it below 30% is ideal.
• Credit Mix (Medium Impact): Having a healthy mix of secured loans (like home or auto loans) and unsecured loans (like credit cards or personal loans) is beneficial.
• Age of Credit History (Medium Impact): A longer history of responsible credit management is positive.
• Recent Credit Inquiries (Low Impact): Applying for too much credit in a short period can negatively affect your score.

How to Improve Your Credit Score?

1. Always pay bills on time. Set up reminders or auto-debit facilities.
2. Keep your credit utilization low. Avoid maxing out your credit cards.
3. Review your credit report regularly. Check for any errors or inaccuracies and get them rectified.
4. Don't close old credit card accounts. This can shorten your credit history.
5. Be cautious with new credit applications. Only apply for credit when you truly need it.

A good credit score is your financial passport. Maintaining it well opens doors to better financial products and lower interest rates.