Discover the 8 essential factors that influence good credit score

A good CIBIL score, or credit score, is indispensable for obtaining loans and credit cards on favorable terms. CIBIL is one of the major credit bureaus in India that evaluates creditworthiness based on a plethora of factors that include payment history, credit utilization ratio, credit mix, length of credit history, credit inquiries, among others.

On the other hand, if Mr. john frequently misses payments, uses up 80% of his credit card limit, and repeatedly defaults on loan EMIs, there is a high chance that his credit score will be low.

Below are some of the indicators of his excellent CIBIL his score

• Range of Scores: CIBIL scores generally vary between 300 and 900. Typically, a score higher than 750 is seen as favorable.
• Payment history: This is the most important factor. Paying your credit card bills and loan EMIs on time shows responsible financial behavior and positively impacts your score.
• Credit Utilization Ratio: The percentage of credits used relative to the total available credits. We recommend keeping this ratio below 30% to demonstrate responsible credit use.
• Credit mix: A healthy mix of credit types, such as credit cards, personal loans, and mortgages, can positively impact your score. This shows that you can manage different types of credit responsibly.
• Credit history: A longer credit history usually indicates stability and responsible credit management. However, for those who have recently started using credit, this is not so important.
• Number of hard queries: A lower number of hard queries can positively impact your score.
• Defaults: If other factors are also positive, no instances of default means a good credit score.
• Credit limit: A higher credit limit and a larger loan amount that you can repay responsibly can have a positive impact on your CIBIL score as it shows the bank's confidence in you.

Also Read: How to use a secured credit card to improve CIBIL score? Here's a guide

FAQ:

What is the most commonly checked credit score?

FICO scores are the most widely used credit scores in the U.S. for consumer lending decisions.

What is a bad credit score?

 FICO considers a credit score to be fair if it's between 580 and 669, and poor if it's below 580.

Who asks for credit score?

A lender or other organization may ask to “check your credit” or “pull your report".

Why is credit score important?

Companies use credit scores to make decisions on whether to offer you a mortgage, credit card, auto loan, and other credit products, as well as for tenant screening and insurance.

How credit is calculated?

A FICO credit score is calculated based on five factors: your payment history, amount owed, new credit, length of credit history, and credit mix.