How Credit Score is Calculated

When you opt for a home loan, a lender will first check your credit score – an important metric to help them evaluate your creditworthiness. One of the most popular credit rating agencies {link to credit bureaus of India} (or credit bureaus) in India is TransUnion CIBIL (Credit Information Bureau India Limited) while others include Experian, CRIF High Mark and Equifax. These are all licensed by the Reserve Bank of India (RBI). Your credit score will be a three-digital number ranging between 300 and 900, with a higher score indicating a better one and increasing your chances of getting a loan approved. With unsecured loans like a personal loan, you actually have the chance of successfully negotiating the interest rate in case of a better score. However, make no mistake – a higher score does not guarantee a loan approval; the lender will take into account a number factors such as your loan repayment capacity and other financial obligations. Know all about what’s a good credit score and how important credit score is for a home loan!  {link to how important is credit score for a home loan} 
 

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Factors Considered While Calculating Your Credit Score 

These are the main factors credit agencies consider while calculating your credit score: 

  1. Credit History (30% weightage): It’s well-known that credit history carries a high weightage in your credit score calculation (30%). Lenders share a detailed account of the borrower’s personal as well as credit-related information for bureaus to decode and create a credit report with a final credit score.  

The credit bureau collates a record of your EMI and bill payments made over the last 3 years. The credit report lists the status of each account – stating whether it has been settled, written off or has an outstanding amount. It also covers your Days Past due details or DPD – a number indicating how many months’ payment is due for any given month. This clearly means that any prior default or delay in paying EMI (Equated Monthly installments) on a loan or a late payment of a credit card bill will weaken your credit score. 

  1. Credit Mix/Type & Duration (25% weightage): This comprises the composition of secured and unsecured loans in your loan portfolio. Unsecured loans are the loans not backed by security such as credit card and personal loans while secured loans such as home loans and auto loans come with collaterals. Any type of default will have a negative impact but a higher composition of unsecured loans results in a lower score even if you have made timely payments. On the other hand, secured loans paid in a timely fashion have a positive impact on your credit score. 
  1. Credit Usage (25% weightage): This is calculated using two metrics – your credit balance (amount you’ve taken on the limit) and your credit limit. To calculate it, you simply have to divide the limit by the balance and multiply by 100. Increasing utilization shows that your financial burdens are increasing with time and taken negatively. 
     
  1. Other Factors (20% weightage): This is displayed under the “Enquiry” section of the Report and includes aspects such as how many credit applications you may have made in the past. A high number of applications reduces your chances of securing a loan.    

Now that you know how the score is calculated, read all you need to know about how to improve your credit score! {link to how to improve your credit score}. And if you’re contemplating buying a house, don’t miss the chance of availing the most exciting deal on the market right now! Simply get in touch with a Fincity advisor right away at 1234567890  and they’ll help you with everything from getting the lowest-interest loans quickly to ensuring your entire loan amount is disbursed without hassle.    

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