Imagine a situation where you come across a brand-new car that you really like, and you decide to buy it. Now, you have some money for the down payment and are considering a car loan for the remaining amount. But when you go to the lender, they refuse to give you the loan, saying that your credit score is not good enough. So, what does a good credit score mean?
In this blog, we will understand more about credit score, what is good credit score range and its benefits. We will also discuss how you can maintain a good credit score.
What is a Good Credit Score?
You can compare your credit score to your marks in the 12th board exams. Just like higher marks in the 12th class increase your chances of getting admission to a good college, similarly, the better your credit score, the more your chances to get a loan.
There’s no hard and fast rule for a good credit score because it varies according to each lender. Typically, if your credit score is above 750, then it is considered a good credit score. This shows lenders that you are a creditworthy borrower who has made timely payments in the past, has low credit utilisation, and has an excellent credit history.
Therefore, you can easily avail of any loan or credit card type if you have a good credit score. That too on favourable terms and conditions. But how much credit score is good for you?
Credit Score Range of all Credit Bureaus
Likewise, we have understood above which credit score is good for us. There may be confusion between many of us: Does this 750 credit score remain the same for all credit agencies, as there are multiple credit bureaus?
So, the answer is No. There are multiple credit bureaus in India, such as CIBIL Transunion, CRIF, Experian, and Equifax. Each credit bureau has its own methodology to calculate the credit score. That’s why the good credit score ranges are different from each other. Let’s find out the best credit score for all agencies, one by one.
Experian
It is the most widely used credit bureau agency accepted by most lenders and financial institutions. The credit score ranges between 300 and 900, and a credit score above 750 is considered the best. ET Money allows you to check your Experian credit score online in a few simple steps at zero cost.
| Credit Score Range | Rating |
300 – 500 | Very Poor |
501 – 650 | Poor |
651 – 750 | Average |
751 – 850 | Good |
851 – 900 | Excellent |
Transunion CIBIL
It is one of the most commonly used credit bureaus to assess your creditworthiness. It also ranges from 300 to 900; a credit score above 649 is considered good, and you can easily avail of any type of credit.
| Credit Score Range | Rating |
300-499 | Poor |
500-649 | Average |
650-749 | Good |
750-900 | Excellent |
CRIF Highmark
CRIF Highmark is a credit bureau company registered and formed in India. The CRIF credit score lies between 300 to 900. However, a credit score above 700 is considered good.
| Credit Score Range | Rating |
300-549 | Low Credit Score |
550-649 | Medium Credit Score |
650-749 | High Credit Score |
750-900 | Excellent Credit Score |
Equifax
It is also a popular credit bureau in India. Likewise, other credit bureaus have a similar credit score range between 300 and 900. And if you have a credit score equal to or above 670, then it is considered as good by various lenders who prefer Equifax.
| Credit Score Range | Rating |
300 to 579 | Poor |
580 to 669 | Fair |
670 to 739 | Good |
740 to 799 | Very Good |
800 to 900 | Exceptional |
What are the Advantages of a Good Credit Score?
Having a best credit score offers you multiple benefits, from availing loans at lower interest rates, faster approval, negotiation with lenders, approval for higher amounts, and so on. Let’s understand each of these benefits in detail.
- Lower Interest Rates: The major benefit of having a good credit score is that you will likely qualify for loans at lower interest rates. It will help you to save a significant amount of interest on your loans. Specifically, you can save a lot of interest if you have availed big-ticket loans such as home loans, mortgage loans, etc.
- Easier Loan Approval: A good credit score increases the chances of approval for various types of loans, such as mortgages, auto, and personal loans. Also, if you have applied for credit cards, your application may be approved without any other formalities.
- Higher Credit Limits: Your credit limit or loan amount is calculated on the basis of your credit score. Hence, if you have a good credit score, you may be approved for a loan for a higher amount. In the case of a credit card, you get the advantage of a higher credit limit.
- Negotiating Power: A good credit score allows you to negotiate with your lenders at the time of loan applications. Generally, banks prefer borrowers with good credit scores; hence, you can bargain with lenders for lower interest rates if you have a good credit score.
- Access to Premium Credit Cards: You might also get premium credit cards with better rewards programs—like cash back, travel incentives, and other benefits—if you have a good credit score.
How to Maintain a Good Credit Score?
Having a good credit score is important as it represents your creditworthiness to potential lenders and allows you to avail of credit easily. Here are some of the steps that you can take to maintain a good credit score.
- Make on-time payments: One of the most important metrics or tools to maintain a good credit score is to make your loan EMIs or credit card payments on the due date. If there is a default in making payments on the due date, it may reduce the credit score.
- Low credit utilization: Another step you can take is to keep an eye on your credit utilization ratio. This ratio reveals how much of your available credit you’re using. It’s best to use only up to 30% of your credit card limit to maintain a healthy credit score. For example, if your credit card limit is Rs 2 lakh, try not to exceed Rs 60,000 in outstanding balance to avoid impacting your credit score.
- Avoid frequently applying for credits: Lenders check your credit report when you apply for any type of loan or credit, called as hard inquiries. If there are multiple inquiries in a short span of time, it might make you seem desperate for credit and will reduce your credit score. Hence, you should avoid making frequent applications for credit cards or loans.
- Make Full Payment of Credit Card: Making partial payments for credit cards not only results in incurring higher interest charges but also impacts your credit score. Hence, paying your credit card bill in full every month is always advisable. This helps you avoid getting trapped in debt and save on high-interest charges.
- Check your credit report frequently: It’s important to check your credit report often. Doing this helps keep your credit healthy. By reviewing it regularly, you can catch errors and fix them quickly. Pay attention to details like your personal info, loans, and payment history to ensure everything is right. This proactive step keeps your credit report accurate.
What impacts your Credit Score?
A credit score is calculated on the basis of multiple factors such as past repayment history, credit utilization, outstanding debts, number of credit enquiries, etc. Credit score companies give weightage to all these factors and calculate your credit score based on these weights. Here are some of the factors that affect your credit score.
- Payment History: Your previous payment history plays a most important role in calculating your credit score; that’s why it has been given maximum weightage. This factor considers whether you have made on-time payments on credit cards or loan EMIs. If you have made any delayed payments or made any payment default in the past, it impacts your credit score.
- Credit Utilization: This refers to the percentage of total available credit you have used. If your credit utilisation is higher, then it might have a negative impact on your credit score. So, keeping your credit utilisation on the lower side is important. It is advisable to have credit utilisation up to 30%.
- Credit Inquiries: When you apply for a loan or credit card, your lender usually assesses your credit report. These examinations are referred to as hard inquiries. If there is a high volume of enquiries in your account, then it may also decrease your credit score as it shows that you are credit-hungry. Hence, it is advisable to not apply for credit cards or loans frequently in a short span of time.
- Credit Mix: This factor considers how many types of loans you have availed in the past. There are various types of secured and unsecured loans, such as personal, car, home, etc. The basic idea behind this is to check whether you have taken too many unsecured loans. Having a diverse mix of credit in your credit report is advisable.
- Length of Credit History: It refers to the total time period for which you have availed credit. It plays an important role in determining your creditworthiness, as it shows the comprehensive journey of your credit management. If you have a longer credit history, the lenders consider it favourable.
How Does a Good Credit Score Help You to Avail Loan?
Maintaining a good credit score is always important when you want to avail any type of credit in your life, such as applying for a credit card, a loan for your house or dream car, etc. Every time you need a good credit score. A credit score above 750 is typically considered good for most loans or credit cards. If you have a credit score above 750, then it becomes easier for you to avail of credit from different lenders.
A good credit score enhances your chances of securing loans with lower interest rates as lenders perceive you as creditworthy. Additionally, it increases the likelihood of loan approval, provides multiple loan options, and facilitates favourable terms such as extended repayment periods or increased credit limits.
Moreover, having a good credit score empowers you to negotiate with lenders regarding rates, tenure or higher limits. Ultimately, it reflects your creditworthiness to the lender and makes it easier for you to avail of any type of loan in future.
Conclusion
In conclusion, a good credit score indicates that you are a creditworthy borrower, providing a surety to the lenders that they will receive their money back. Additionally, having a good credit score allows you to easily qualify for various types of loans that, with favourable terms such as lower interest rates, and you may also be eligible for higher loan amounts. However, if your credit score is not good, you may encounter some difficulty in obtaining loans. And if you do get a loan, it may come with a higher interest rate. Therefore, having a good credit score is important to avoid any future difficulties in obtaining loans.
Frequently Asked Questions
What steps can I take to have a credit score above 700?
To get a credit score of more than 700, you can take various actions such as minimising your credit utilisation upto 30%, do not take unnecessary debts, do not apply frequently for loans or credit cards, make on-time payments for your debts.
Are there any benefits of having a good credit score when applying for a loan?
Yes, you can avail of multiple benefits with a good credit score. One of the most prominent benefits of having a good credit score is getting loans easily at lower interest rates.
Can one attain a credit score of 850?
Yes, getting an 850 credit score is quite possible, but you will have to remain disciplined in your financial journey, which includes timely repayments of your loans, low credit utilisation, diverse credit accounts, and long credit history.
Will my credit score improve immediately after clearing all past outstanding dues?
Your credit score will not change immediately if you have cleared your outstanding dues. Typically, financial institutions provide monthly reports to the credit agencies, and thereby, they update your credit score. It may take 30-40 days to get your credit score updated.
How much time is typically needed to build a good credit score?
Credit scores are built on the basis of your credit utilisation, existing debt, payment history, etc. Hence, there is no prescribed time frame to build a credit score. But it may take around 6 months to build your credit score.
What is the difference between a good credit score and a good CIBIL score?
A good credit score and a good CIBIL score are typically the same thing, as both convey that you have a favourable credit history. A good credit score is a common term used by every credit rating agencies such as such as Experian, CIBIL, CRIF, etc. However, a Good CIBIL score is used for credit score given by the CIBIL or Credit Information Bureau (India) Limited (CIBIL) in India. If you want to understand more about the difference between CIBIL score and Credit score, then you can check our blog on – CIBIL score vs credit score.
What Is a Good Credit Score to Buy a House?
Most banks prefer a minimum credit score 650 for processing any home loan application. But, if you have a credit score above 750, it is considered good, and you can easily avail of home loans on good terms.
If you want to know the expected EMI for your home loan, then you can use the home loan calculator to calculate your EMI.
What Is a Good Credit Score to Buy a Car?
There is no specified good credit score to avail of a car loan, but if you have a credit score above 750, it becomes easier for you to avail a car loan. However, you may also get a car loan if your credit score is lower. But, if your credit score is below 650, you may not be able to avail a car loan.
If you plan to buy a car, use the car loan calculator to calculate your EMI and plan accordingly.
What Is a Good Credit Score for a Credit Card?
For credit cards, a credit score above 750 is generally considered good for quicker approval.
What Is a Good Credit Score for a Mortgage?
A good credit score for any mortgage loan equals or exceeds 750. However, if you have a credit score below 750, you can also avail of a mortgage loan. But if your credit score is less than 650, then it may be difficult for you to obtain a mortgage loan.
What Is a Good Credit Score for a Personal Loan?
If you have a credit score equal to or above 750, you can easily get a personal loan from any bank or NBFC. If you have a credit score lower than 750, you can also take a personal loan, but you may have to bear higher interest rates.
If you want to know the EMI for your personal loan, you can use a personal loan calculator, which allows you to calculate your EMI seamlessly.
