What is a good credit score and how can one achieve it?

If you want to borrow a loan, the first thing any lender would look for is your credit score. It is an indicator of your creditworthiness and is based on payment history and credit behaviour. The more disciplined you are in your payment history, the higher your credit score. And the less disciplined you are in your credit history, the lower your score.

Let us first understand what a good credit score is. Typically, the score above 700 is believed to be good. And when it is above 750, it is considered excellent. And when the score is excellent, you can manage to raise a personal loan at a low rate of interest. 

Then the score in the range of 650 to 699 is fair and below this is known as poor credit score. At that level, it is difficult to raise a personal loan on convenient terms.

Key steps to take to maintain a good credit score

1. Pay EMIs and credit card bills on time: One of the foremost factors which influences credit score is your payment history. This is the biggest factor and can have upto 35 to 40 per cent of your score. Late or missed payments quickly hurt your score.

2. Keep credit utilisation low: Another smart tip is to keep credit utilisation lower than 30 percent. High utilisation indicates that you are credit-hungry even if you clear your bills in full.

3. Long credit history: Older accounts build trust with lenders. So, it is advisable to avoid closing old credit cards unless it is necessary.

4. Keep hard inquiries minimum: Applying for multiple loans/credit cards in a short span of time leads to hard inquiries. And be mindful of the fact that too many of these hard inquiries can lower your credit score, albeit marginally.

5. Have a good credit mix: A healthy mix of secured (such as home loans) and unsecured credit (such as personal loans or credit cards) is good for your profile.

6. Check your credit report regularly: One should watch for errors or fraudulent activity. You are entitled to one free report every year from credit bureau such as CRIF High Mark.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.