Understanding your credit score is the first step to financial freedom
Your credit score is more than just a number—it's your financial identity in the eyes of lenders, and it can save you lakhs of rupees over your lifetime. Whether you're planning to buy your first car, looking for a home loan, or simply want to get that premium credit card with better rewards, your credit score plays a crucial role.
Key Takeaways
- Credit scores in India range from 300 to 900, with 750+ considered excellent
- Payment history (35%) is the most important factor affecting your score
- A 750+ score can save you Rs 15+ lakhs on a home loan through lower interest rates
- Check your credit score for free through banks, apps, or directly from bureaus
- Building good credit takes 12-24 months of consistent on-time payments
What is a Credit Score?
A credit score is a three-digit number that represents your creditworthiness—essentially, how likely you are to repay borrowed money based on your past financial behavior. In India, credit scores range from 300 to 900, with higher scores indicating better credit health. Think of it as your financial report card that lenders check before deciding whether to approve your loan or credit card application, and what interest rate to offer you.
Understanding Credit Score Ranges
📊 Credit Score Breakdown
The Financial Impact: Home Loan Example (Rs 50 Lakhs for 20 Years)
📊 Savings with excellent score: Rs 15+ Lakhs!
What Factors Affect Your Credit Score?
- Payment History (35%): Most important factor. Your track record of paying EMIs, credit card bills, and other obligations on time.
- Credit Utilization (30%): How much of your available credit you're using. Keep below 30%, ideally under 10%.
- Credit History Length (15%): Age of your oldest account and average age of all accounts. Longer is better.
- Credit Mix (10%): Variety of credit types—secured loans, unsecured loans, and credit cards.
- Recent Inquiries (10%): Hard inquiries from loan applications. Multiple inquiries in short period hurt your score.
How to Improve a Low Credit Score
Start by checking your report for errors and disputing inaccuracies. Pay down outstanding dues and avoid missing future payments. Reduce revolving debt and refrain from new credit until the score improves. Over 6–12 months of consistent behaviour, scores typically improve.
Why It Matters for Your Finances
A good credit score helps you get lower interest rates on home, personal, and vehicle loans, and better terms on credit cards. It can also matter for rentals and sometimes employment checks. Building and maintaining a healthy score is a core part of financial planning.
What is a good credit score in India?
Scores above 750 are generally considered good and help you get loans at competitive rates. Scores between 700 and 750 are fair; you may get approval but with slightly higher rates or stricter terms. Below 700, lenders may charge higher interest or ask for a co-applicant or collateral. Below 650, approval becomes difficult for unsecured products like personal loans and credit cards. Each bureau uses a slightly different scale, but the idea is the same: higher is better. Aim for 750+ for the best deals on home and personal loans.
How to check your credit score and report
You can get your credit score and report from the four bureaus (CIBIL, Experian, Equifax, CRIF) through their websites or through banks and fintech apps that offer free or paid reports. Once a year, it is advisable to download your full report and check for errors—wrong personal details, accounts you did not open, or incorrect payment status. Dispute any inaccuracies with the bureau; correction can take a few weeks but can improve your score. Checking your own score is a soft inquiry and does not harm your score.
What hurts your credit score the most
- Missed or late payments: Even one missed EMI or credit card payment can significantly dent your score.
- High credit utilisation: Using more than 30–40% of your total card limit signals dependency on credit.
- Too many loan or card applications: Each application leads to a hard inquiry, which can lower the score slightly.
- Defaulting on loans: Defaults and write-offs stay on the report for years and severely impact the score.
- Closing old credit cards: Shortens your credit history and can reduce available limit, raising utilisation.
How long does it take to improve a bad score?
There is no fixed timeline. If the cause was a few late payments, paying on time for 6–12 months can show noticeable improvement. If there were defaults or write-offs, the impact stays for years (typically 7 years as per bureau practices), but consistent good behaviour gradually improves the score. Focus on paying all dues on time, reducing outstanding debt, and avoiding new credit until the score is in a better range. Do not fall for "quick fix" schemes; improving score is about sustained discipline.
Credit score and home loan eligibility
Banks and housing finance companies use your credit score to decide loan approval and interest rate. A score of 750+ often gets you the best home loan rates; some lenders offer a discount for scores above 800. A low score can mean rejection or a higher rate, which over a 20-year loan can mean lakhs in extra interest. Before you apply for a home loan, check your score and report, fix errors, and if needed wait a few months to improve the score so you qualify for a better rate.
Use Our Credit Score Guide
For a detailed walkthrough, tools, and tips tailored to India, use our Credit Score Guide. It covers checking your score, reading your report, and step-by-step ways to build and improve your score.