A higher credit score not only improves the chances of loan approval, but also determines the interest rate and repayment terms provided by the lender. Banks and lenders such as NBFC share repayment information with credit information companies, which calculates the score. This score greatly affects loan access and affordability.
So it is important to understand what a credit score is, how to decide and what you can do to improve it.
How credit scores help
Credit scores are not only beneficial to those seeking loans, but also serve as an important tool for lending companies. It is an effective tool to ensure a transparent and effective lending process.
It has simplified the entire loan approval process as it is a standardized transparency system for evaluating applicants. It can help banks and other financial organizations evaluate borrowers’ credibility, reduce default risks, and make informed decisions about loan approvals, interest rates and credit lines.
The lender relies heavily on credit scores to determine the applicant’s ability to repay. This also affects the loan-to-value ratio and the overall cost of borrowing.
In addition, credit scores promote financial discipline, encourage responsible borrowing and timely repayment, thereby supporting long-term financial well-being.
The better your credit score, the higher your chances of getting loan approval. Borrowers may also gain additional benefits such as low interest rates, better repayment terms and faster loan approval processes.
Factors that affect credit scores
There are several factors that determine how to calculate a credit score. Some of them are:
Payment History: This is determined by the applicant’s credit transaction, outstanding amount, repayment time and credit loan period (measured by the opening date of the oldest credit account).
Credit usage: This is the ratio of credit to credit line. Lower utilization indicates better credit management.
Number of newly opened and terminated accounts: Creating a new account will reduce the average age of your existing credit account, which can lower your overall credit score.
Unpaid debts: You should always make sure that outstanding debts are cleared. When your unpaid dues are reflected in your credit report, it will lose your score. It is recommended that you pay off the outstanding membership fees even if the amount is small.
Credit portfolio: If you are on unsecured (such as a credit card) and get a good balance of credit limits (such as a home loan) (such as a credit card), your score may increase.
How to build a good credit score
Credit scores can be improved by maintaining financial discipline. Additionally, the following steps will help:
Make sure your credit card and loan payments are paid before time or time. This can be done easily by setting reminders.
To keep your credit history clean, keep your previous credit card in good condition.
Monitor your spending by following your credit card restrictions. Do not exceed the limit.
Get loans from various credit lines for better interest rates and larger loan amounts.
Choose a longer loan repayment period.
Pay off your current loan before you get another loan.
How to monitor credit scores
Monitoring and improving credit scores has become easier with the help of a wide range of tools and services available now. Credit bureaus such as Cibil, Experian, Equifax, and Crif High Mark provide detailed credit reports that allow individuals to regularly check their scores.
Most financial institutions also offer free or subscription-based credit score monitoring services, often with real-time alerts about changes in credit activity. Additionally, many financial applications help manage timely EMI and bill payments, track fees and optimize credit utilization.
Almost every financial institution in India also provides educational and informative resources to guide borrowers’ responsible credit behaviors, ensuring continuous improvement over time.
in conclusion
Maintaining a good credit score is crucial to obtaining a loan on favorable terms and ensuring financial stability. A high credit score can improve loan eligibility, reduce borrowing costs, and enable better financial planning.
By adopting responsible credit habits such as timely payments, maintaining a healthy credit portfolio, and monitoring credit utilization, individuals can effectively manage credit health and achieve long-term financial goals.
Karamjeet Singh is the leader – Credit Policy, HDB Financial Services
