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  • Know about Credit Score and how is it calculated?

    Credit Score

    A credit score can be defined as a 3-digit number between 300 and 900 that describes the credit merit of a credit card holder or of an individual who has taken a loan. In order to grant a loan in India, the potential lenders use the credit scores calculated by CIBIL TransUnion, Experian, Equifax or CRIF High Mark. Several lenders consider CIBIL scores to be the benchmark for granting a loan to a borrower. Credit scores help to depict the credit and repayment history, utilization of credit, tenures of previous debts, and so on. Although the banks in India have their individual limit to grant loans, your chances of getting a loan approved is higher if your credit score is 900.

    How is Credit Score calculated?

    The score is calculated by every credit information company, using its proprietary algorithm. This depends on several factors such as the credit history of the candidate and his/her credit repayment conduct. A number of aspects are taken into consideration while calculating the credit scores, which are:-

    Credit History:

    According to a few experts, the credit history plays a vital role in determining an individual’s credit score. This aspect holds information about your previous credit card and loan payment history, timely repayments and outstanding amount, if any. If you have failed to repay your loan amount or any credit card payment on time, then this will reflect on your credit history, which in turn, will negatively affect your credit score.

    Credit Type:

    The second most important factor that impacts your credit score is the credit type. Credit bureaus such as CIBIL TransUnion, Experian, Equifax or CRIF High Mark take into consideration the secured or unsecured type of loans that was approved in the past and how old your credit history is. Individuals with high credit scores have both secured and unsecured loans and do not depend on a single type of debt like credit cards or a personal loan. For example, mixing an unsecured debt like a credit card with a secured debt like a property loan is better than relying on only a credit score to maintain a high score.

    Credit Exposure:

    Credit exposure depends on how high or low your credit score is. In case of a credit card debt, the credit score tilts to the higher side while having zero debts may go against you. Moreover, individuals with a lower debt and an appropriate credit ratio, i.e. less than 40%, tends to have a higher credit score. This reflects the individual’s capability to take an added debt and repay it on time.

    Other Aspects:

    There are several other factors which play a significant role in determining your credit score. Applicants who have handled credit like loans and credit cards for a long period tend to have higher credit scores. On the other hand, applicants who have been rejected numerous times for new credit have a lower credit score as this reflects on your credit report.

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