What is the role of Credit Score in India?

Credit Score in India

A financial emergency can hit anytime- a requirement of funds for unexpected medical expenses, shortage of funds in a wedding, expenses such as home repairs or financial crisis in business. As they say, you must have emergency funds for at least six months but are we able to maintain that?

The answer is no!

In such times, what helps to overcome the boat of financial distress is borrowing funds from your friend or family or a lending institution like Banks and Non-Banking financial institutions. However, if you take a loan from these lending institutions, there are specific eligibility criteria that you must fulfil, and one of those is having a good credit score and having a regular credit score check.

What is a credit score?

A credit score is a numerical representation of your past financial transactions based on your utilisation of credit and repayment of credits in the past. It determines the creditworthiness of the borrower in terms of repayment of loan based on the income levels.

Why do banks check credit scores?

 Banks and Non-Banking Financial institutions check your credit score before providing a loan to ensure that you don’t default on payments and repay the loans on time. Borrowers who have a good credit score can get loans at a lower interest rate than others without any hassle.

What are the credit agencies that provide credit scores?

In India, there are primarily four credit agencies that provide credit scores to the borrowers:

  1. CIBIL TransUnion (CIBIL)
  2. Experian
  3. Equifax
  4. High Mark

However, most of the financial institutions check the credit ratings of CIBIL. CIBIL or Credit Information Bureau India Limited provides credit scores ranging between 300 and 900, where 900 is the highest credit score. Borrowers who have a credit score of 750 or above can easily avail a loan at attractive interest rates without any hurdles.

How does CIBIL provide a credit score?

The credit agency analyses the financial record of the past six months on the financial transactions related to loans, credit cards and investments made by the individuals. These transactions are analysed, processed and then represented in the credit report based on the following parameters.

  1. Repayment of loans
  2. Debt-Income Ratio
  3. Credit Utilisation Ratio
  4. Payment of credit card bills
  5. Types of Loan taken
  6. Types of Enquiries made

How can you check your credit score?

If you want to check your credit score, you can visit the official website of CIBIL and check your credit score. However, the number of times you can check your credit score is limited. If you want to check your credit score at regular intervals there are two options available to you, and these are:

  1. Check your credit score by getting a subscription of CIBIL
  2. You can also check your credit score free through online marketplaces like Myloancare, Paisa Bazaar, Bankbazaar etc.

Tips for maintaining a good credit score:

While having a good credit score is a basic necessity to avail any loans from banks, you must keep your credit score good by following these steps.

  1. You must always repay all the credits on time. Missing EMI can reduce your credit score.
  2. Don’t take multiple loans simultaneously. You must maintain a good debt-income ratio.
  3. Try to pay the full balance of credit card bills.
  4. You must maintain a lower credit utilisation ratio,
  5. Don’t overspend the credit card limits.
  6. It would help if you did not make multiple enquiries for taking a loan simultaneously.
  7. Always take a mix of secured and unsecured loans.

Credit Score for a Business:

The different range set of business houses from solo to the group cannot ignore the role of credit rating. For the smooth functioning of the business, it is critical to ensure a strong credit report.

The inflow and outflow of the capital are must when it comes to running of the business. Thereby, any time a need can arise to get a loan. In such a case, we must have stable finances backed up. Banks will undergo a complete enquiry.

Starting on your own would require an office space. Thereby, the landlord would also check your credit history to check your credibility.

Doing business can seem to be a fancy idea from the outer, but it is not that easy. A businesswoman needs to set her credibility and show up in every area. From the economic context, any investors wish to tie up or not to tie up with the domain. They will verify and secure the past records in which the score speaks so much about the business.

Save your every penny you can. Instead, put that money in a better place like the growth of your business. A good credit score can fetch you a low-interest loan.

All the transactions related to business need to be recorded, the bills need to be cleared on time, taking a loan and repaying it on time is essential. Building the right business image is vital. A good business owner should follow all these practices.

Well, the first time a right shot is made, it would give you returns for life. You can apply for financing every time and get your desired credit. You can reap all the benefits. One tip to be followed is that be careful in terms of your business credit report.

Making a successful business calls for a large number of things. Having a successful and dream business is a dream for all, among the operations, marketing, services. The credit score is the most critical factor. Again, and again, I am emphasizing credit score because without the score; the business will not run as the finances will come to a halt.


Thus, it is necessary to maintain a good credit score. If you have no credit history, you must do some financial transitions to get a credit score. Also, if you find that there is any discrepancy in credit score, you must immediately inform the bank or credit rating agency. The process of improving the score can start at any stage. It is not late and you can start today!


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