How credit score impacts borrowing 

Let’s be honest — most of us don’t even think about our credit score until we need money from a bank. You walk into a branch (or open a loan app), fill out the form, and the banker says, “Sir/Ma’am, your credit score is low.” Suddenly, you’re wondering — what on earth is that, and why does it matter?

Your credit score is like your financial reputation. It tells lenders if you’ve been a responsible borrower or a risky one. And trust me, in India, this little three-digit number can make a huge difference — from how much loan you get to how much interest you’ll pay.

Factors That Determine Credit Scores

Credit scores don’t just pop out of thin air. They’re calculated based on your financial habits. In India, banks usually check your CIBIL score (or other credit bureau scores) before giving you a loan or credit card.

Here’s what makes up your score:

Payment History – 35%

This is the single biggest factor. If you always pay your EMIs, credit card bills, and loans on time — your score shines. If you miss payments, it takes a hit.

Example: Ravi took a ₹3 lakh personal loan. For two years, he paid every EMI on time — result? His score went up. But when Neha missed three consecutive credit card bills, her score dropped faster than a cricket ball hit for a six.

Pro tip: Even one late payment can stay on your report for years. So set reminders or auto-pay your bills.

Amounts Owed – 30%

This is about how much you owe compared to how much credit you have. If your credit card is always maxed out, it tells lenders you might be struggling with money.

Example: Your card limit is ₹1 lakh. If you’re always using ₹90,000 or more, that’s a red flag. Keep it under 30–40% of your limit to stay safe.

Credit Mix – 10%

Having a balance of secured loans (like home or car loans) and unsecured loans (like personal loans or credit cards) is good for your score.

Example: Sunita has a home loan, a small car loan, and one credit card — all managed well. This variety tells banks she can handle different types of credit responsibly.

Length of Credit History – 15%

The longer your credit history, the better. Lenders prefer borrowers with a long track record of good behaviour.

Example: If you got your first credit card in 2010 and never defaulted, that history works in your favour. Closing old accounts for no reason? Not a great idea — it shortens your credit history.

New Credit – 10%

Applying for too many loans or credit cards in a short time can hurt your score. Each application creates a “hard enquiry,” which lowers your score slightly.

Example: Arjun applied for three credit cards in two months. Banks saw him as desperate for credit, and his score dipped.

How Credit Score Impacts Borrowing in India

In India, a score above 750 is considered good. Here’s how it changes your borrowing experience:

• Loan Approval: Higher score = faster approval.
  
• Interest Rates: Good scores get better (lower) interest rates.
  
• Credit Limit: Higher score means banks trust you with a higher limit.
  
• Loan Terms: Good scores can fetch longer repayment periods and flexible EMIs.

Example: Rohit and Anil both apply for a ₹50 lakh home loan. Rohit’s score is 780, Anil’s is 650. Rohit gets 8.2% interest, Anil gets 9.5%. Over 20 years, that’s lakhs of rupees in extra interest for Anil — all because of that number.

FAQ

1. How does your credit score affect your borrowing power?

It’s like your borrowing passport. The higher it is, the more money you can borrow, and at cheaper rates.

2. How do credit ratings impact the cost of borrowing?

High score = low interest. Low score = high interest (or even rejection).

3. How does credit score impact loan rates?

With a good score, you can get lower rates and even negotiate. With a bad score, you’re stuck paying more.

4. How does your credit score affect your loan terms?

Better scores often mean longer repayment periods, bigger limits, and easier EMI options.

Final Word

In India, your credit score is like your financial Aadhaar — it follows you everywhere. Keep your payments on time, don’t overuse your credit, and don’t apply for loans every other month. Handle it well, and when you need money — whether for your dream home, a car, or your child’s education — your score will open the door instead of locking it.

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