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CEOWORLD magazine - Latest - Education and Career - Credit Score And Its Importance: The Whys and Hows

Education and Career

Credit Score And Its Importance: The Whys and Hows

Credit Score

Have you ever wondered how your friend managed to get a personal Loan at a lower rate of interest, when both of you applied at the same time, and at the same bank? What’s more, even when your loan amount doesn’t get sanctioned in its entirety, your friend might be given the full value of the loan they applied for. Well, the critical factor that causes this different treatment is the all-important credit score.

A number of financial dealings are dependent on the credit score, from taking a loan or raking the benefits of a credit card. What does your credit score imply though, and how exactly does it have a bearing on your financial dealings? Read on to find out.

What is a Credit Score?

Your credit score is a 3-digit number obtained by analysing all your past loans and repayments, and evaluates your creditworthiness based on credit reports. This statistically-derived value is primarily based on your past credit history, and serves as a useful tool to lenders. Unpaid dues on old loans can adversely affect your credit score. Though you may have to cough up interest and penalties, the complete settlement of your long-pending payments can brighten your credit report and bring in a visible improvement in your credit score.

Your credit score is not just a number, but a key to your financial health. Ensure that you meet your obligations on time and review your credit score on a regular basis, so you’re always aware of where you stand. Credit discipline is the best way to keep your credit score consistently high.

The credit score is simply an indication whether the borrower will repay his loan.

An indicator of your credit health, your credit score is your main financial asset. In India, credit scores are assigned by CIBIL. The primary job of this organisation is to track your borrowings—and subsequent repayment patterns.

You are assigned scores in the range of 300 to 900. CIBIL which is governed by RBI guidelines, also makes the Credit Information Report (CIR). A glance at your CIR and credit score is all a lender requires to understand your creditworthiness. When you apply for an online personal loan, the bank evaluates your credit score before it decides to approve and disburse the loan.

The higher your credit score, the better your chances of availing loans and lines of credit at lower rates of interest. If you need a loan, apply online; most banks will approve your loan if your CIBIL score is over 750.

How does credit score affect you?

  • A good credit score improves your eligibility for loans under favourable terms.
  • Interest forms a major component in loan repayments; a high credit score helps you avail personal loans at lower interest rates. In case of Loans, lower interest rates translate to lower EMIs.
  • The use of plastic money has spiralled; someone with a high credit score has better chances of being offered a credit card by the bank, with a higher limit.
  • In the future, insurance companies, telecom companies, and landlords are set to have a peek into your credit score. If you decide to buy a house, a high credit score can get you an easy personal Loan.
  • Your future job prospects might also be affected by your credit score. Some employers track credit scores of candidates to gain an insight into their creditworthiness.

How to Improve your Credit Score

Your credit score is a reflection of your credit history; defaults in repayment are sure to affect your credit score. This can badly affect your credit standing, especially when you are scouting loans.

However, it’s not the end of the world if your credit score has fallen. There are ways by which you can improve your credit score, and enjoy favourable credit terms.

Do not Default on Payments

The golden rule to keeping your credit score high is to make all your payments by or before the due date. Defaults can immediately bring down your credit score. If (say) you are unable to pay off your huge credit card bill, ensure that you make the minimum payment at least. This ensures that there is no negative impact on your credit score.

Check for Discrepancies in your Credit Report

Your credit score is based on the credit report. The information here is sourced from various institutions and lenders from whom you have borrowed. Here, your credit score can be affected by errors made by those obtaining such information.

A detailed examination of your credit report will help uncover any such discrepancies, improving your illogically low credit score.

Think Twice Before Taking a Loan

A loan is a liability any day, and non-repayment can affect your credit score significantly. Today, there is no dearth of institutions/banks offering loans. Before you jump to take the offer though, examine the conditional clauses and the documentation required. If you do not satisfy even one requisite condition, it is best that you don’t apply for the loan.

Never take the attitude of ‘hit or miss’. Banks conduct a credit check before loan approval. This is called a hard enquiry, and a number of these can play havoc with your credit score.

To improve your credit score, weigh all propositions before taking a loan.

Unpaid dues on old loans can adversely affect your credit score. Though you may have to cough up interest and penalties, the complete settlement of your long-pending payments can brighten your credit report and bring in a visible improvement in your credit score.

Your credit score is not just a number, but a key to your financial health. Ensure that you meet your obligations on time and review your credit score on a regular basis, so you’re always aware of where you stand. Credit discipline is the best way to keep your credit score consistently high.


Written by: Nitin Arora, an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has worked extensively in the finance sector and has been dealing with the entire range of loans. He has written numerous pieces on home loans, business loans, doctor loans, EMI loans etc. and how they affect the customer in the present market scenario. He has been dealing with a host of reputed clients associated with the financial industry. Nitin has also amassed a great name for himself as a financial blogger writing for CEOWORLD Magazine.


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This report/news/ranking/statistics has been prepared only for general guidance on matters of interest and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, CEOWORLD magazine does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.


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