Get All Access for $5/mo

Everyday Money: Why Your Credit Score Matters Credit scores are used by banks and finance companies to determine whether or not to offer credit

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Shutterstock

Credit score has finally started getting due attention in India. This is because an individual's credit score is a key determiner of his likelihood to get big-ticket loans and the interest rate that will be charged on the loan.

Experian, CIBIL, CRIF and Equifax are the four credit bureaus in India that create credit score after examining credit report of individuals.

A credit report is a summary of your past financial transactions. It mainly contains details about your loan and credit card payment history and how much debt you have. Someone who has never taken a loan or does not have a credit card might end up with a low credit score as credit agencies will have nothing to base the score on.

Related Read: 4 Ways To Improve Your Credit Score

Here's why you need to maintain a healthy credit score:

Easy approval of loan application

Lenders use credit score to determine how likely you are to pay back loans. A low credit score indicates that you have not been diligent with loan or credit card repayments in the past and are likely to default in the future as well.

A low score makes you a risky borrower even if you have a good salary, no outstanding debt or enough collateral to support your loan application. With a low credit score chances are that the lender will not approve your loan application or slap you with a higher interest rate.

Credit score affects interest rate

Interest rate on loans and credit score are directly linked. For banks, applicant's credit score is one of the key factors to set the interest rate on the loan or credit card balance. The simple rule is that the better the credit score, the lower will be the interest outgo and vice-versa.

It would be prudent to check your credit score before applying for a loan. If it's less, you should take measures to improve your credit history in the next 6-8 months and then apply for the loan. A difference of 100 in your score can reduce your interest rate by 50-60 bps, which would translate into substantial savings over the loan tenure.

What is a good credit score

Credit score

Rating

300- 579

Poor

580-669

Fair

670-739

Good

740-799

Very Good

800 and above

Excellent

Source: Experian

News and Trends

"45% of All Ongoing Hydropower Projects in India are Ours": Patel Engineering

Patel Engineering reported a turnover of INR 4,400 crore in the last fiscal year, with a projected 10 per cent growth for the current year.

Side Hustle

'Hustling Every Day': These Friends Started a Side Hustle With $2,500 Each — It 'Snowballed' to Over $500,000 and Became a Multimillion-Dollar Brand

Paris Emily Nicholson and Saskia Teje Jenkins had a 2020 brainstorm session that led to a lucrative business.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Franchise

Kick-Start Your Small Business With These Cost Effective Strategies

Starting a small business is an exciting adventure, brimming with both opportunities and challenges. A key to success is effectively managing costs from the outset.

Science & Technology

5 Rule-Bending AI Hacks to Make Your Mornings More Productive and Profitable

By 2025, AI will transform productivity by streamlining workflows and cutting costs. Major companies like Microsoft, Google, and OpenAI are leading the way, advancing AI into "Phase 3," where tools act as digital assistants. Discover 5 AI hacks to boost efficiency and redefine your daily routine.