Credit Score
A credit score is a three-digit numerical representation of an individual's creditworthiness, calculated by credit bureaus using data from their credit history, and used by lenders to determine loan eligibility, interest rates, and credit limits.
A credit score is one of the most consequential numbers in a person's financial life. In India, the Reserve Bank of India licensed four credit information companies to maintain credit records: CIBIL (TransUnion CIBIL), Experian, Equifax, and CRIF High Mark. While each bureau used its own scoring model and scale, the CIBIL score on a range of 300–900 became the most widely referenced in the country.
Credit scores were calculated using several factors, each carrying a different weight. Payment history was the most significant component — whether the borrower paid EMIs and credit card bills on time, in full, and without defaults. Credit utilisation ratio, which measured how much of the available credit limit was being used at any point, was the second major factor. A person using Rs 90,000 of a Rs 1,00,000 credit limit had a 90% utilisation ratio, which signalled credit stress and pulled the score down. Keeping utilisation below 30% was a commonly advised threshold.
The length of credit history rewarded older accounts, meaning that closing an old credit card could paradoxically harm a score even if the card was no longer being used. The mix of credit — secured loans like home or auto loans alongside unsecured credit like personal loans and credit cards — demonstrated the ability to manage different types of debt. New credit inquiries, each time a lender pulled a credit report for a fresh loan application, had a modest negative effect, which was why applying for multiple loans simultaneously was inadvisable.
A CIBIL score above 750 was broadly considered to be 'good' and unlocked access to competitive interest rates, higher loan amounts, and faster approval processes at most lenders. Scores below 650 often resulted in outright rejections from mainstream banks, pushing borrowers toward non-banking financial companies that charged higher interest rates.
Improving a damaged credit score was a long-term process. It required consistent on-time payments, reducing outstanding balances, avoiding new hard inquiries except when necessary, and disputing errors in the credit report — a step that was more important than many people recognised, since incorrect data from lenders was not uncommon and could suppress a score unfairly. Free annual credit reports were available from all four bureaus under RBI guidelines, giving consumers the means to monitor their records.