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How is my credit score calculated?

Friday, August 10, 2012 by Rajiv Raj

cs101n1Your credit score is based on four major factors: Repayment history, utilisation of credit, secured versus unsecured loans and the number of times you have inquired about loans. 

Repayment history: If you have already taken loans your payment history is the most important factor that determines your credit score. Regular repayment of loans means you are awarded a higher score. If you have missed payments, delayed or defaulted on payments, your score will be much lower. 

Utilisation of credit facilities: Credit facilities include credit cards and overdrafts. If you regularly borrow over your credit limit or access the overdraft facility regularly, it means you don't manage credit risk properly. If you have high outstanding amounts on your credit card, it will also result in a lower score.

Secured versus unsecured loans: If your credit portfolio has a higher percentage of secured loans (auto loans, home loans), your credit score will be higher. If you have a large number of unsecured loans (credit cards and personal loans) it shows bad money management and results in a lower score.

Inquiries: If you have too many inquiries to lending institutions for any kind of credit facility, no matter that you have been granted the loan, then it reflects poorly on your credit score. It shows that you are in constant need of funds.  

MadanRajiv Raj

Rajiv is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India’s first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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