What Determines Your Credit Score?
Your Credit Score (often referred to as CIBIL Score in India) is a 3-digit number ranging from 300 to 900 that summarizes your creditworthiness. It is calculated based on your past behavior with loans and credit cards.
Lenders use this score to evaluate the risk of lending to you. A score above 750 is generally required to get loans at the lowest interest rates.
Credit Score Ranges: Where Do You Stand?
| Score Range | Rating | Loan Eligibility |
|---|---|---|
| 750 – 900 | Excellent | Fast approval, lowest interest rates |
| 700 – 749 | Good | High approval chances, standard rates |
| 650 – 699 | Average | Possible approval, higher interest |
| 300 – 649 | Poor | Likely rejection |
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The 5 Pillars of Credit Scoring
- Payment History (35%): The most critical factor. Even a single missed payment can drop your score by 50+ points.
- Credit Utilization (30%): How much of your limit you use. High utilization (>30%) signals "credit hunger".
- Credit Age (15%): Older accounts boost your score. Never close your oldest credit card.
Soft Inquiry vs Hard Inquiry
| Feature | Soft Inquiry | Hard Inquiry |
|---|---|---|
| Who checks? | You / Employer | Bank or Lender |
| Purpose | Monitoring / Information | Loan or credit card application |
| Impact on score | No impact | −5 to −10 points |
How the Credit Score Is Calculated
While the exact algorithm is proprietary (CIBIL/FICO), credit scores broadly follow this weighted structure:
- P: Payment History (35%)
- U: Credit Utilization (30%)
- A: Age of Credit History (15%)
- M: Credit Mix (10%)
- N: New Inquiries (10%)
Steps to Improve Your Credit Score (750+)
- Automate payments: Never miss EMIs or card dues.
- Increase credit limit: Lowers utilization instantly.
- Avoid frequent applications: Too many hard enquiries hurt your score.