Understanding credit scores: What do they mean?

Your credit score is an essential measure of your creditworthiness. It is based on the information in your credit report, which potential lenders check to see if you have met your financial obligations and can do so. If your lender does not trust that you will pay what you owe them, they do not extend the score. Thus, understanding your credit score is crucial when attempting to secure Loans or other credits.

That said, not everyone understands this three-digit number. Let us know your credit score better and more in-depth.

What is a credit score?

Lenders consider them to determine whether to extend Loans or other financial products to you. It depends on your credit report information, including details about your accounts, payment history, and current debt. Lenders also use a credit score to assess your likelihood of repaying a debt. The higher your credit score, the better. Credit scores generally range from 300 to 750 and above.

The higher your score, the better the chances of getting Loans, Credit Cards, and lower interest rates. A good score (750 and above) lands you the best interest rates and terms on Loans and Credit Cards. A poor score (below 750) means rejection of Loans and cards or higher interest rates.

How to calculate them?

You can calculate your credit score by obtaining a free copy of your report, which is ideal to do at least once a year. Multiple CIBIL score check on websites is possible. There are several ways to calculate them. Some organisations also use a different formula when evaluating your creditworthiness. Standardised Credit Score is the most widely used formula; lenders use the FICO scoring system to make credit decisions.

Most lenders who use the FICO formula also provide a breakdown of your credit score and include the factors that added to the score.


Your credit report shows what accounts you have opened and how you paid them over time. Every time you make a payment on a credit account, such as a Credit Card or any Loan, you build your credit history. Note that the timing of these payments also impacts your credit score. Paying off your dues timely reflects well on your credit report.

You can also build your credit history by applying for new financial products and making timely payments. You can improve your credit score by opening new accounts. However, make sure you can pay them off on time each month.

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