Credit Score – The Complete Guide

You might want to take a loan or apply for a credit card to buy something, but there’s something you need to take into consideration first: your credit score. Here is a detailed guide to all you need to know about credit scores.

Chapter 1: What is a Credit Score?

A credit score is a three-digit number that determines how ‘credit-worthy’ you are as an individual. It is used by lenders to estimate how likely you are to return their money on time if they give you a loan. To avail loans easily and at low-interest rates, it’s essential that you maintain a high credit score. A low credit score severely limits your purchasing power. 

Credit scores are published by credit bureaus. Credit bureaus are companies that collect credit information and create a credit report for each individual. There are currently four major credit bureaus in India that are approved by the RBI. They issue their own credit scores:

  • CIBIL Score
  • CRIF Score
  • Experian score
  • Equifax score

All four credit scores use different algorithms to calculate the credit score. Hence, the credit scores for a person may vary slightly depending on the credit bureau that has issued it.

1. What is CIBIL?

CIBIL, Central Credit Information Bureau India Limited, is India’s first (and the most popular) credit information bureau that maintains a record of all credit-related activities or transactions of individuals. It maintains credit records of 600 million individuals and 32 million businesses. CIBIL was acquired by TransUnion( an American credit rating agency) in 2017 and is now known as TransUnion CIBIL. 

CIBIL performs the following functions:

  1. For individuals, it prepares credit reports and issues a credit score
  2. For businesses, it provides comprehensive risk management tools for lending

What is CIBIL score?

CIBIL Score is the credit score issued by CIBIL (India’s first credit bureau) and ranges between 300 to 900. The score is derived using information from all past credit transactions and loans. A score above 750 is considered to be an excellent score.  

CIBIL issues a credit report which contains a person’s loans and payment history across all the credit institutions over a period of time. A Credit Information Report, or CIR, does not contain information about savings, fixed deposits, and investments. It simply contains information related to your credit usage. 

To get all information about your credit score, make sure to read your Credit information Report (CIR) carefully.

A CIR contains:

  1. Personal information
  2. Contact details
  3. Employment details
  4. Account information
  5. Access information openly available to banks and other financial institutions

Studying your CIR regularly helps you identify any red flags and inconsistencies. It helps you become more prudent about your expenses and enables you to make better financial decisions.

Here are some important things to know about your CIBIL credit score

  1. You can get a loan even with a low credit score. Different banks have different credit score cut-offs for loans. If you clear the cut-off you become eligible for a loan. However, the interest rate will be higher for low scores. 
  2. Your CIBIL score will be different from credit scores generated by other credit bureaus. 
  3. When you directly contact CIBIL to check your credit score, it’s called a soft inquiry. When banks and other financial institutions ask CIBIL about your score, it’s called a hard inquiry. Numerous hard inquiries in a short period of time can hurt your credit score. 
  4. Even if you have multiple accounts, but pay your bills on time, your credit score will not decrease.
  5. Lastly, you can get a credit report once a year free of charge.

2. What is a CRIF credit score?

CRIF Highmark is one of the four major credit bureaus in India, similar to CIBIL. It specializes in micro-finance, rural and agri space. It is the world’s largest microfinance database. A CRIF score is one of the four types of credit scores that also ranges from 300-900.

Here are some facts about CRIF credit score:

  1. CRIF produces two types of credit scores – one for individuals and one for businesses. Both range from 300-900. The closer your score is to 900, the better your chances are of getting loans.
  2. A CRIF Report costs Rs. 399 as compared to CIBIL, which costs Rs. 500 after the first free report.
  3. CRIF provides special microfinance credit reports and market insights along with credit scores for commercial and small businesses.

3. What is an Experian credit score?

Experian, one of the top 4 credit agencies in India, also has a score ranging from 300 to 900. A score of 700+ is considered ideal. 

Here are some facts about Experian credit score:

  1. Experian gives personal credit reports, consumer reports, commercial reports, international business reports, and Experian information reports.
  2. Experian has launched a Credit insight program that provides credit education, personal assistance and also cross-selling of other financial products.

4. What is an Equifax credit score?

The Equifax credit score ranges from 280 to 850 compared to scores from other bureaus, which range from 300 to 900. The Equifax credit score can also be used to find your CIBIL and Experian credit scores. 

Other than this, this type of credit score is similar in nature and function to CIBIL, CRIF and Experian credit scores. 

Chapter 2: How is a credit score calculated?

It’s hard to imagine that a three-digit number can impact your life in so many ways. This number determines your eligibility for loans, interest rates for loans and all future expenditure. Banks and financial institutions use this score to determine how creditworthy you are. If you want to have access to a secure line of credit at all times, make sure this three-digit number is as high as possible.

Credit bureaus take into consideration several factors to calculate a credit score. Each credit bureau gives slightly different weightages to the criteria involved, but there are five major ones that all credit bureaus analyze. 

Top 5 factors that are affecting your credit score:

  • Payment history:

Do you have a habit of paying credit card bills late? If so, it’s time to change that. Late payments are a big no-no since they are seen as a sign of reckless spending by credit bureaus. This can pull down your credit score quite badly. Remember, your credit score is openly available to all banks and financial institutions. When they calculate your credit score, payment history is the most crucial factor.

  • Credit Utilization:

Credit utilization refers to the amount of credit you have taken in comparison to how much credit you are entitled to take. According to credit experts, you should ideally use not more than 30% of your credit limit. For example, even if your credit limit is Rs 1,00,000 per month, (combining all credit cards), you should ideally be spending only  Rs. 30,000 per month. Even regular usage of 50% of the credit limit can cause your score to fall. Prioritize your expenditure and which payment method to cover it with so you spend prudently. 

  • Credit mix:

Credit Mix refers to the different types of accounts that make up a person’s credit portfolio. These include secured loans (house loan, car loan, etc) and unsecured loans (loans not protected by any collateral e.g. credit card). Make sure you have more secured loans than unsecured loans. 

  • Credit Duration:

Another important factor affecting credit score is how old your credit is. If you’re someone who’s been using credit for several years and paying back on time, your score will increase. Having said that, about 10% of your credit should consist of new credit. Credit bureaus see this as a renewed interest in credit loans.  

  • Outstanding Debt:

How much debt you have at any given time is an important factor that affects your credit score. The more debt you have, the less eligible you become for future credit and loans. These days, you can even book flight tickets on credit. Though these small purchases are necessary, they do add up and put you in a perilous position if you’re not paying them back regularly. Eventually, you’re seen as a risky investment so you should manage your debts properly before it gets to that.

[Bubbled Image / Pie Chart for 4 factors]

This table gives a break up of weightage of the different factors affecting a credit score

Factors affecting credit score Weightage
Payment History 30%
Credit Exposure 25%
Credit Mix and Credit Duration 25%
Other factors (Outstanding Debt, number of credit inquiries etc.) 20%

Since CIBIL score is most popular amongst the four credit scores available in India, in the next section we will be talking about CIBIL score in detail.

Chapter 3: How to check CIBIL score for free?

As per RBI guidelines, each individual is entitled to have a copy of his/her credit report for free once in a year from each credit bureau.  This copy is also called FCCR (Full Free Credit Report) and contains your credit score as well. Given the sensitivity of the data, the credit report is sent to an individual only after due verification of his personal details.

There are several websites online where you can check your CIBIL score for free. You can either directly visit the credit bureau site for your credit report or you can check out websites such as Paisabazaar, BankBazaar, etc.,  which pull the credit report for you.

Credit Bureau links for checking your credit score:

Other major websites to check your credit score:

Note:

Checking your own credit report will not lower your Score. By checking your Credit Report regularly, you can make better financial decisions and detect identity theft as well.

If you want to pull your report more than once during the calendar year from the same credit bureau, then the second and future credit reports are chargeable. Here are the charges for credit reports from various credit bureaus:

Credit Agency Credit report price (in Rupees)
CIBIL 550
Experian 399
CRIF 399
Equifax 400

Chapter 4: How to improve CIBIL score?

If you are confused about how to improve your CIBIL score immediately, look no further. Follow these guidelines and watch how your low CIBIL score improves:

1. Pay all dues on time

Do you pay all your credit bills on time? If not, this can bring down your CIBIL score significantly.  Paying dues regularly shows that you’re a prudent borrower and are considered trustworthy by banks and lenders. Late payments come with a penalty too. To avoid this extra burden, just pay your dues on time and improve your low CIBIL score! 

2. Avoid taking multiple loans

If you keep taking new loans, without wrapping up the old ones, you’ll find yourself stuck in a debt cycle. To build up your CIBIL score, repay your old loans first before jumping on to new ones. All your loans are tracked by credit rating agencies. Timely and disciplined loan clearance is a sure shot method to improve a bad CIBIL score.

3. Well balanced credit mix

Your credit portfolio is considered to be balanced when it has the right mix of both secured and unsecured loans. Secured loans are home loans, auto loans etc. Personal loans and credit card loans are unsecured loans. Unsecured loans are riskier than secured loans. Having more secured than unsecured loans will help improve your CIBIL score, but the right proportion of unsecured loans is also essential to maintain a good CIBIL score.

4. Don’t spend beyond your credit limit

The problem with credit is that if we are not disciplined, it becomes very easy to overspend. With a tap of the finger, impulsive buying comes naturally to us. However, according to credit experts, you should not spend more than 30% of your credit limit. If you make it a habit of constantly exceeding this limit, your debt builds up over time and can eventually be difficult to repay. So if you’re wondering how to improve your CIBIL score immediately, start with not exceeding your credit limit. 

5. Keep reviewing your credit history

Study your credit report (CIR) regularly. Sometimes even CIBIL makes mistakes in uploading correct information about your credit transactions. Remember, reporting these mistakes will help improve low CIBIL score. 

6. Don’t throw away or discard your credit cards

Upgrading your credit cards to one which has a higher limit is often necessary. But throwing away old cards can also reduce your CIBIL score. CIBIL sees card disposal as a sign of inability to handle credit card payments. The number of credit transactions, as well as the type of credit line transactions, affect the overall credit score of an individual. 

7. Avoid multiple credit applications

Applying for multiple credit applications in a short span of time will result in multiple credit report inquiries by the lenders. If there are multiple rejections in your applications, it will lower your credit score.

Chapter 5: How to build a credit score?

If you have never taken a loan or credit card, you will have no credit history. And with no credit history, it will be difficult for you to get a loan or credit card! It is a classic chicken and egg problem. According to Cibil, 79% of loans or credit cards are approved for individuals with a high CIBIL Score.

Fear not because there are many ways by which you can build your credit score from scratch. Here are some ways to build a credit score:

1. Signup with ZestMoney 

This is one of the easiest and most convenient methods because it is 100% online. ZestMoney’s services have been specially created keeping in mind ‘New to Credit’ customers. When you sign up with ZestMoney, you get a credit limit which can be used with over 3000 merchant partners. By paying back your credit on time, you will gradually build up your CIBIL score. Over time, if you are regular with your payments, ZestMoneywill increase your credit limit. As you start building up a higher credit score, you will soon become eligible for bigger loans, such as home loans and vehicle loans from major banks in India. ZestMoney also offers no-cost EMI plans – this means you can build up your credit score without paying a penny in interest.

2. Try to get a loan

 As mentioned earlier, it’s tough to get a loan with no credit history. However, some loans are slightly easier to get as compared to others. 

    • Student and auto loans: loans for education and personal vehicles show that you are ready to take on responsibility for big loan payments. Do make sure you can handle these large amounts of money before you sign up for a loan. 
    • Personal loans and secured loans: personal loans will help build credit but they come with high-interest rates. Secured loans, on the other hand, are a better option. You pay a security deposit upfront, which is then used as collateral if you default.

3. Try to get a credit card:
Obtaining a credit card is a hierarchical process. If you’re just starting out, you’re simply not eligible for credit cards with higher credit limits. You have to climb your way to the top. Therefore, start off with something simple. As a beginner, you have a few reasonable options on how to build credit:

  • Secured credit card: banks will accept cash as collateral, which they will hold just in case you’re unable to make your credit payments. Get a secured credit card from a well-known bank that reports to all four credit bureaus.
  • Student credit cards: ideal for those just starting off with credit cards. However, credit limits are low with student credit cards and the interest rates are comparatively higher. 
  • Store credit cards: basically a card you can use at department stores to make everyday purchases. It’s a step towards making you a responsible cardholder.
  • Parental credit card: parents can co-sign a credit card on your behalf and make you eligible to use their credit cards. This is a good option for students because, if your parents have a high credit score, your likelihood of becoming a co-signed member also improves. 

All the above methods definitely help you build credit. It’s important to be responsible and choose your options wisely. Don’t pay interest unless absolutely necessary and don’t miss your payments no matter what. Always spend well within your credit limit. Following these guidelines will help you build a credit score responsibly.

Chapter 6: How can you still get a loan without CIBIL?

Almost everyone needs a personal loan within their lifetime, but if you have no credit history you’re probably worried if you’re eligible for a personal loan without a CIBIL score.

Banks do offer loans to people who have insufficient credit history, but with tedious high-interest rates. What if there’s an option to buy whatever you want without a credit card and that too with zero interest rates? The option you should probably explore is ZestMoney.

What is ZestMoney?

ZestMoney is a platform that aims to improve the lives of 300 million Indians who don’t have access to traditional financing options due to a lack of credit history. ZestMoney uses mobile technology, digital banking, and advanced Artificial Intelligence to revolutionize financial transactions in India. 

Why choose ZestMoney?

At ZestMoney, we believe that a lack of credit cards should not stop you from availing credit. Millions of people are held back from investing in their aspirations because they are simply not eligible to make purchases they want. ZestMoney is here to redefine this narrative. 

How can you use ZestMoney?

Here are the steps involved in availing ZestMoneycredit:

  1. You need to be above 18 years old
  2. You need to possess a bank account and KYC details
  3. You must upload the information on the ZestMoney website
  4. ZestMoney checks your data and gives you a credit limit instantly!
  5. Use that credit limitto make purchases across our partner websites

What all can you purchase using ZestMoneycredit?

Gone are the days where you can only buy houses and cars with credit. 

You can buy smartphones, home appliances, clothes, insurance and even online courses. ZestMoney has partnered with a plethora of websites that offer all kinds of products and services. We are present across India’s largest e-commerce platforms, fashion websites, travel portals, fitness centers, insurance companies, and even online education portals.

How can I make repayments using Zest?

Here’s the best part about using ZestMoney. You don’t need to pay for your purchases all at once. You can use ZestMoney’s no-cost EMI options for repayment. A no cost EMI means that we charge zero interest on all your purchases (available on 3-month tenure EMIs). You can also choose to pay back in smaller amounts by taking a tenure of 6, 9 or 12 months. 

In India, most banks and financial institutions do not offer no-cost EMI options, so there is always the additional burden of paying extra interest when you use these traditional channels to make purchases.

ZestMoney’s no-cost EMI option is quick, convenient and best of all, free of interest. Make the best of ZestMoney and get closer to your dreams! 

FAQs on CIBIL score

Can I get a credit card without a credit score and no credit history?

At ZestMoney, we believe that lack of credit card should not prevent you from making payments using credit. Sign up with ZestMoney, upload KYC details and wait for us to give you a credit limit. Use ZestMoneycredit to make a wide range of purchases across top merchants like Amazon, Flipkart, Myntra, MakeMyTrip, Yatra, Croma, LifeStyle, Upgrad and hundreds of other merchants.

Can I get credit with a low CIBIL score?

With ZestMoney, you can make credit payments with low or no CIBIL score! ZestMoney takes into account a large number of factors to assign you a ZestMoney credit limit, which can be used to make purchases across ZestMoney’s partner websites.

Can I get an instant loan with a low CIBIL score?

If you go to banks or other money lenders, getting an instant loan for a low CIBIL score is a tedious process. Plus you’ll be charged a very high-interest rate. At ZestMoney, you can buy whatever you want on EMI, as long as it is within your ZestMoney credit limit. ZestMoney also offers personal loans after you have completed a few EMIs with us.

Can I make credit purchases with a CIBIL score of zero?

Traditionally, banks will see it as an unfavourable sign if you have a zero CIBIL score. It’s much more difficult to get loans with a zero credit score. However, at ZestMoney, we take many factors into account apart from CIBIL score to approve customer applications. So you can definitely apply for a ZestMoney credit limit without a credit score.

How long will it take to improve CIBIL score to 750+?

Improving your CIBIL score takes time and effort. It takes about 12 months to get a score above 750. So, making an instant purchase is often not an option. If you need to buy a new expensive smartphone, for example, you can buy now and pack back in no-cost installments with ZestMoney. You don’t have to limit yourself by being worried about your CIBIL score.

Will closing my bank account affect my CIBIL score?

No, it will not because CIBIL is calculated based on credit payments and transactions irrespective of which bank account you have. Your bank account does not give information about credit history, therefore there is no need to worry.

How often are CIBIL scores updated?

Your CIBIL score is updated every 45 days. Keeping this in mind, be aware that some of your recent transactions may not reflect immediately.

Does my CIBIL score drop if I inquire about it too often?

As a credit card holder, you are entitled to know about your credit report. That’s a soft inquiry. Only hard inquiries hurt your score. Hard inquiry is one that is initiated by third party banks and financial institutions.

Who can check my CIBIL score?

Your credit score is visible to you, banks, lenders and other financial institutions. Every time you apply for a loan, your credit score is the first thing they see.

How do I make purchases using ZestMoney credit?

You need to be 18+ years old to use ZestMoney credit. Just upload the bank and KYC details. Once verified ZestMoney will give you a credit limit that you can utilize to make payments at your favorite merchants. i.e. if your credit limit is Rs. 50,000, you can use it to buy anything under that amount.

What can I buy with ZestMoney credit?

ZestMoney credit enables you to buy a wide range of products and services across our partners. You can buy electronics, furniture, gym memberships, insurance and much more! Don’t hold back on that smartphone. Make the purchase!

Can I improve my CIBIL score using ZestMoney?

Yes! Since ZestMoney is a digital lender and every timely payment that you make towards your ZestMoney EMIs gets reported to CIBIL. As timely payment is the most important factor in deciding your CIBIL score, your score will gradually improve over time.

What are the advantages of using ZestMoney?

ZestMoney allows you to buy a wide range of products, even if you don’t have a credit card. Once you get the credit limit from Zest, you can immediately start shopping for your favourite things across our partner websites. You can upgrade your life quickly by investing in all the things you love using ZestMoney. Flexible, no-cost EMI plans offered by ZestMoney make it the best payment option available!

You’re the centre of our universe!

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