Home Business Credit Score Calculation By Credit Bureaus – Simplified For You By Creditmantri

Credit Score Calculation By Credit Bureaus – Simplified For You By Creditmantri

Credit Score – Your Credibility Marker

It would be an ideal life if you never had to get a loan. But we don’t live in an ideal world, do we? Personal loans, home loans, education loans, vehicle loans, business loans, and more; individuals have so many loan options to fulfil certain important needs in their lives. And the important eligibility criteria for all these loans? Your Credit Score! 

Your Credit Score, a 3-digit number ranging from 300 to 900, tells the lender about your credibility and repayment capability so that they can decide on your loan application. Your credit score is also the determinant for your final loan amount and interest rate. A credit score of 700 and above is considered ideal and gets you the best loans in the market. 

Your credit score tell lenders about all of your loans and credit cards, as well as how well you’ve paid them back. It shows how successfully you’ve managed your debt repayments based on your previous repayment behaviour for loan EMIs and credit card bills. As a result, lenders consider your credit score to be a significant indicator of your ability to repay.

How Do Credit Bureaus Compute Your Credit Score?

CIBIL, Equifax, CRIF High Mark, and Experian are the four authorized credit bureaus in India that issue and maintain credit scores.

Credit bureaus calculate your credit score using information from your credit report, which includes a summary of your current outstanding loans, former credit accounts, and current credit card balances, as well as other credit-related data. It’s based on your credit history, which is gleaned from the ‘Accounts’ and ‘Requests’ portions of your credit report.

There are 5 important components constituting your credit score – 

1. Credit Repayment History (35%)

Your entire credit repayment history reveals what kind of borrower you were in the past and how consistent you were with your payments. This accounts for about 35% of your total credit score. As credit repayment history carries such a large impact, you should tread cautiously when it comes to loan repayments.

2. Credit Utilization Ratio (30%)

This is the difference between the amount of credit you have available and the amount of credit you’ve previously used. This ratio is an extremely important factor in determining your credit score. The credit utilization ratio reveals your spending habits and demonstrates your commitment to keeping a healthy credit balance for emergencies. Experts recommend that it’s ideal to keep this ratio below 30%.

3. Credit Length (15%)

The term “credit length” relates to the length of time it takes to repay a loan and whether or not the repayment schedule is adhered to. If you have previously taken out a loan and have always been on time and consistent with your payments, this will have a good impact on your credit score.

4. Credit Enquiries (15%)

There are two types of credit inquiries: hard and soft. A soft inquiry is when you check your credit score without making an active application for any credit instrument. It has no impact on your credit score. When you apply for a loan or a credit card, however, the lender does a rigorous inquiry into your credit background and score. Your credit score will be lowered by a few points as a result of this. Make sure you’re not applying for numerous credits in the same area at the same time. This will make you appear to be a credit-hungry borrower, which will negatively impact your credit score.

5. Credit Mix (10%)

When lenders examine your credit profile, a good credit mix is always desirable. Secured and unsecured loans, long-term and short-term credit, and fixed and revolving credit are all included in the credit mix. It will be considered a great blend of all credit categories if you have a home loan, a credit card, and an unsecured personal loan.

Where And How To Check My Credit Score For Free? 

Your credit report can be obtained from any of India’s four credit bureaus: CIBIL, Equifax, Experian, and CRIF High Mark. Every year, you are entitled to one free credit report from each of the credit bureau as well as their credit score. You can also get a free credit score and a comprehensive credit analysis report from CreditMantri

Credit Score experts suggest that one should check his/her credit score every 3 months to be on top of their credit health and take the right measures to maintain their credit score on top. 

Creditmantri offers you a free credit score and a complete credit report analysis to improve your credit health. Check your complete credit score analysis and let our experts help you in fixing your credit score so that you can get the best loans and other credit options in the market. 

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