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They say life is an examination, if this were true then ‘ Credit Score ’ would arguably be the most frequently computed score, even without one appearing for a formal assessment!

We all have heard about it and some even dread looking at it, so let us understand what the frenzy is all about.

What is a credit score?

Credit score is a numerical estimation of the credit worthiness of an individual. Simply put, it is a number that indicates the likelihood of you repaying your loans and bills on time and therefore used by banks and other financial institutions to make decisions while assessing loan applications.

CS of an individual comprises of various factors assessed by credit rating agencies like CIBIL Transunion, Equifax, Experian and Highmark who then arrive at a 3 digit score indicating the financial health and discipline levels of an individual.

Key factors that affect your credit score?

While each credit bureau adopts a different mode to arrive at that score, there are some key common factors that have a significant impact on this score

How to improve your credit score?

Improving your CS is not an overnight exercise but needs a consistent and disciplined approach for a lasting impact.

These are some simple ways to improve your credit score

  • Check if you have a CS already, if not, start building one
    • Many people don’t even have a credit history since they have never borrowed money from banks or financial institutions and don’t even use a credit card. It is advisable to build a credit history early in your adult life so that you can build on it over a long term
  • Apply for loans, only when you absolutely need to
    • While it could be tempting to keep borrowing as and when one feels the need, but it is critical to establish if you really need to borrow. Borrowing frequently would make you look like someone who doesn’t manage personal finances efficiently
  • Repay on time
    • It sounds simple, if you borrow, then you must remember to pay back on time. Missing EMIs, whether on account of a genuine financial crunch or by mistake would certainly reduce your CS
  • Do not go overboard on your credit card
    • It is a fantastic feeling to have a credit card with a high credit limit, but if you decide to exhaust the limit frequently, it would be looked at negatively and would have a significant negative impact on your CS. So, use your credit card judiciously
  • Monitor your credit score
    • There are several platforms that allow you to check your credit score and sometimes even for free. One must keep a close watch on the CS, trends and reports; especially number of active loans and credit card accounts and inform the bank in case of any discrepancies