What is a Good Credit Score In India?(2024)

In India, a small three-digit number can determine your ability to take loans or apply for credit cards for the rest of your life.

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That's not all. This number decides whether you are eligible for EMIs and can avail of a low insurance premium. This is called a credit score. 

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Indian financial institutions and money lenders use a credit score called 'CIBIL Score' to measure a person's credit worthiness.

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This score indicates whether you can pay back a loan and your financial stability. It demonstrates how likely the person will default on their loan repayment and bills. 

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So, it is crucial to properly understand the importance of credit score and how much it can impact your financial health.

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What is a Good Credit Score in India?

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A credit score is made of a three-digit number that ranges from 300 to 900.

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Its state can impact your short-term and long-term fiscal goals and even your financial future. 

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The credit score is calculated by validating your credit history, credit score report, and rating. The closer your credit score is to 900, the better your chance of getting a debt.

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Most companies consider 850 a perfect credit score. But today, the minimum requirement for availing a loan, EMI, hence a good credit score in India is 750 and above.

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Anything below 750 gets automatically rejected.

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Interesting Fact: Credit Information Bureau India Limited or CIBIL is India's primary credit information generation bureau. However, Equifax and Experian are two other leading players.

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How is Credit Score Calculated in India?

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Every credit bureau has its own formula for calculating a credit score. But certain factors are common among all. These factors are:

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Why Must You Maintain a Good Credit Score in India?

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The current times that we live in, make it imperative for us to make financial health as important as physical and mental health.

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Several studies have shown that financial burden triggers psychological strains like anxiety, sleep disorders, and depression in people. In some ways, mental well-being largely depends on one's financial health.

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Therefore, you must ensure that you are financially prepared to face any uncertainties and have your family's future secured.

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To do this, the first thing you must do is build and maintain a satisfactory credit score. 

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Not only will it help you easily get a loan, a credit card, or avail EMI facilities with favorable terms, with a high credit score, you can unlock many savings and benefits.

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Let's take a look at some aspects that you can unlock with a higher credit score

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Significant Savings on Interest Rates for Loans

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When you are taking a large number of loans for major purchases like a mortgage, car loan, education loan, etc., even a small dent in interest rate can save you lakhs of rupees.

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Having a good CIBIL score can help you secure a loan at the lowest interest rate.

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That means you save big bucks!

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For instance, if you take a 30-year fixed-rate loan of ₹60 lakh at 7.5% interest, you have to pay ₹1,51,03,033.

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But with a good CIBIL score, you can get the same loan at a 6.5% interest rate; you repay ₹1,36,52,669. That means you are saving ₹14,50,364. Now, that's a lot of money!

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Credit Card Benefits

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Apart from loans, having a good credit score can help you get high-value credit cards with more lucrative rewards.

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Furthermore, it means that you can handle your debt and pay your bills in a timely manner.

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So, credit card providers and banks are more likely to offer you a higher credit limit.

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Quicker Loan Approvals

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It is one of the most significant benefits of having a good credit score.

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Many money lenders offer pre-approved loans or loans on credit cards to borrowers who have a long and healthy credit history.

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Your loan application gets a better chance of getting approved immediately. If you have a good credit score, you are more likely to skip the waiting period.

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Adds Value to Your Visa Application

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Did you know that your foreign travel may get hampered because of a bad credit score?

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Yes, a high credit score adds additional importance to your visa application.

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That's not all; countries like the US and UK also consider your income tax records while approving your visa application. 

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Thus, a high credit score can offer you multiple benefits. That's why you should maintain a healthy credit rating.

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How to Boost Your Credit Score Fast

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You have understood how important it is to maintain a good credit score.

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If you have reached this point, you may be looking for ways to improve it.

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But building a good credit score is a prolonged process. Improving a bad score takes years, the good news? It's not impossible. Here's how:

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Use 3 Major Credit Cards

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Using only one credit card puts an unnecessary burden on your credit summary.

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While this is true, many people may suggest you use multiple credit cards to keep your credit score in check. That's a myth.

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Using too many credit cards also creates a bad impression on creditors. Therefore, use a maximum of three credit cards from major creditors to maintain a balance.

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Minimize Your Credit Utilization Rate

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A credit utilization rate is the proportion of a borrower's total available credit against the current debt.

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It is instrumental in calculating your credit score. It constitutes 30% of your score. Experts suggest keeping the rate below 10% by splitting your expenses among all three cards.

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For instance, suppose you have three credit cards.

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Card 1: total outstanding ₹5,000. Used ₹1,000

Card 2: total outstanding ₹10,000. Used ₹2,500

Card 3: total outstanding ₹8,000. Used ₹4,000

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Your total credit outstanding in all three cards is ₹5,000 + ₹10,000 + ₹8,000 = ₹23,000

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You totally used ₹1,000 + ₹2,500 + ₹4,000 = ₹7,500

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Your credit utilization rate is $7,500 / $23,000 = 32.6%

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Get a Bigger Credit Limit

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A smaller credit limit tends to increase the burden on your credit utilization ratio, which brings down your credit score.

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Suppose your total credit limit is ₹25,000 and you have used ₹12,500. Then your credit utilization rate is 50%. 

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Instead of struggling to reduce that rate, you can simply ask your creditor to increase your credit limit.

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For example, if your credit limit doubles to ₹50,000, your credit utilization rate will automatically reduce to 25%. This will have a major impact on your credit score.

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Get an Add-On Card from Your Family Member

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Do you have any family members whose credit scores are high?

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Then get an add-on credit card from them. Thus, their long credit history, on-time payments, and minimum credit utilization ratio can substantially improve your credit score.

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Repay Your Debts On-Time

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This is the ultimate rule for improving your credit score.

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Don't miss your credit card payment due date by even one day.

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Remember, your credit history makes up 35% of your credit score. Avoid paying late fees and high-interest rates.

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Not only will you save your hard-earned money, but your credit score will also improve drastically if you pay your bills on time.

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Apart from your dues, there are various penalties you should steer clear of to avoid being in a debt trap.

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Before making any payment, check your credit card statement well. Ensure you are not being overcharged.

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Check out this beginner’s guide on avoiding credit card penalties that can help you start your credit journey sans the heavy fees.

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Fix Error in Your Credit Report

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It's natural to make mistakes. But one small mistake on your credit report can significantly affect your credit score.

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So, review your credit report every month diligently.

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If you have never missed your payment date and you have found an error in your report, make sure to lodge a complaint. Remember, no mistake is too small to correct.

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Repair Your Credit Score

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You can get your credit score repaired and rebuilt by a third-party provider.

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There are many affordable credit repair organizations available that will boost your credit score.

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They can fix the damage you might have done because of faulty financial behavior. Thus, you can easily become eligible to get a loan by improving your credit score.

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Good to remember: Credit repairing is a long process. It sometimes takes 4 to 12 months to improve your credit score and become eligible for a loan.

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Remember Building A Credit Score Is A Long Process

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If you are a new borrower, do not expect a spectacular credit score in the beginning.
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When you take a loan or credit card for the first time, you have zero credit history. It takes long usage and patience to build a good credit history. 

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For multiple years, the credit information bureau monitors whether you are paying your EMIs and bills in a timely manner or not, and whether you have low credit balances.

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Upon checking only, you become trustworthy to lenders. Remember, your responsible behavior over time is the most reliable way to build a good credit score from scratch.

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It may take you nearly a year to generate an adequate score. But, years of smart credit usage only can help you reach an excellent credit score. 

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Apart from the above points, there are different types of credits that can also boost your score in a short period of time.

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Check this blog to know more about the tricks to increase your credit score.

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Key Takeaway

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The credit score is a major benchmark for checking your credit eligibility.

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It is a crucial deciding factor in your loan or EMI approval. But it's unfortunate that many consumers are not even aware of this until their loan application is rejected.

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Therefore, you should be vigilant about checking your credit score every year because it is always a good idea to prevent your credit score from slipping rather than repair it.

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You will reap the result of having responsible credit behavior when you apply for a loan, visa, or credit card.

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