© IE Online Media Services Pvt Ltd
Tags:
Journalism of Courage
—Adhil Shetty, CEO, BankBazaar.com
Your credit score is a three-digit number that determines if you qualify for a loan or get an attractive interest rate. It reflects how responsibly you borrow and repay. A good score above 750 can unlock lower rates and higher limits, while a poor one can close doors. Banks, NBFCs, and even credit card issuers use it to decide whether to lend to you and at what cost. Yet, many people misunderstand what truly drives it. Some factors carry real weight, while others, surprisingly, don’t. Here’s a closer look at what shapes your score and what doesn’t.
Nothing influences your credit score more than your ability to pay on time. Each late payment, even by a few days, dents your score. Defaults on loans are even more damaging, and their impact lingers for years. Consistency is key. Be regular with payments across credit cards, personal loans, and EMIs to maintain a spotless record and keep your score comfortably above 750. Setting up auto-debits or payment reminders can help you avoid unnecessary slips that cost you valuable points.
Credit Utilisation Limit (CUL) is the amount of credit you use compared to your total available credit limit. It’s a major factor in determining your score. Ideally, keep your usage below 30% of your total limit. For example, if you have two cards with a combined limit of ₹2 lakh, try not to use more than ₹60,000 in a billing cycle. Routinely maxing out cards, even if you repay on time, can still hurt your score. High utilisation signals financial stress to lenders. A smarter approach is to spread spending across cards or request a higher limit if your income supports it.
Lenders look at how you handle different types of credit—both secured (like home or auto loans) and unsecured (like personal loans or credit cards). A healthy balance reflects financial discipline. For instance, someone repaying a ₹10 lakh car loan on time while managing a ₹50,000 credit card responsibly may score higher than another person with only a single ₹3 lakh personal loan. Varied credit experience helps lenders assess your repayment behaviour under different obligations. However, avoid borrowing just to diversify. Let genuine needs guide your credit decisions.
Whenever you apply for a fresh loan or credit card, the lender checks your credit report with a process known as a “hard enquiry”. A few are harmless, but several applications within a short period can make you appear credit-hungry, causing your score to drop by 5–10 points each time. If you’re comparing rates or products, use “soft enquiry” tools offered by fintech platforms. They let you check eligibility without affecting your score. Space out your applications and apply only when necessary to keep your profile strong.
The length of your credit history also shapes your score. Lenders value borrowers who have a long, consistent track record of managing credit responsibly. The older your accounts and the longer your average account age, the better your score. This is why experts advise against closing old, unused credit cards. Doing so can shorten your credit history and slightly lower your score. Even if you don’t use an old card frequently, keeping it open with minimal activity helps maintain your credit age.
Your income, savings, or investments have no direct impact on your credit score. Nor do debit card transactions, utility bill payments, or Buy Now, Pay Later (BNPL) purchases—unless you default and they’re reported to credit bureaus. Many believe checking their credit score often will lower it. It won’t. In fact, reviewing your score regularly is good financial hygiene, helping you spot errors or fraud early. What really matters is your credit behaviour, not your salary slip or mutual fund balance.
A good credit score is earned, not bought. It rewards financial discipline—timely repayments, low utilisation, and mindful borrowing. Think of it as your financial reputation. The stronger it is, the easier and cheaper it becomes to access credit when you truly need it.
