Your credit score, explained: what moves it and how to check it for free

A credit score is a three-digit number that summarises how you have handled borrowed money. Banks and lenders use it to decide whether to lend to you and at what interest rate. In India, scores typically range from 300 to 900, and a higher score is better.

Who calculates it

Credit information companies (CICs), sometimes called credit bureaus, collect repayment data from banks and lenders. They are licensed by the Reserve Bank of India under the Credit Information Companies (Regulation) Act, 2005. India has four: TransUnion CIBIL, Experian, Equifax and CRIF High Mark. Each builds its own score, so your number may differ slightly between them.

What goes into your score

The exact formulas are private, but the main factors are well known:

• Repayment history: Paying EMIs and card bills on time matters most. Even one missed payment can pull your score down.
• Credit utilisation: How much of your credit card limit you use. Using a small share of your limit is better than running close to it.
• Length of credit history: A longer record of handling credit well helps.
• Credit mix: A healthy mix of secured loans, such as home or car loans, and unsecured credit, such as cards, can help.
• New credit enquiries: Many loan or card applications in a short period can signal credit hunger and lower your score.

Checking your own score is a "soft" enquiry and does not affect it.

Getting your report for free

Under RBI rules, each credit information company must give you one free full credit report, with your score, once every calendar year on request. You can get it from each bureau's website after verifying your identity, so you can see four free reports a year in total.

Fixing errors

Mistakes happen: a loan you closed may still show as open, or someone else's account may appear in your file. To correct it:

1. Raise a dispute with the credit bureau through its website.
2. The bureau checks with the lender that reported the data.
3. RBI rules require complaints to be resolved within a set time, and if they are not, you are entitled to compensation for each day of delay.

If the issue is not resolved, you can escalate through the RBI's complaint management system.

Reading your credit report

Your score is a summary. The report behind it has the detail, and it is worth reading line by line:

• Personal details: name, date of birth, PAN, addresses and phone numbers. Mistakes here can mix your file up with someone else's.
• Accounts: every loan and card, with the lender, the date opened, the limit or loan amount, and the current balance.
• Payment history: for each month, a "days past due" (DPD) figure. "000" or "STD" means you paid on time; a number such as 030 means a payment was 30 days late.
• Enquiries: which lenders have checked your report, and when.

"Settled" is not the same as "closed"

If you could not repay a loan in full and the lender agreed to accept a smaller amount, the account is marked "settled". That status stays in your report for years and tells future lenders that you did not repay as agreed. A loan repaid in full is marked "closed". If you can, repay in full and get a no-dues certificate. If you have a settled account, paying the remaining amount and asking the lender to update the status can help over time.

Newer RBI rules that help you

• Lenders must now report updates to credit bureaus every fortnight rather than monthly, so a loan you repay shows up in your report sooner.
• Credit bureaus must alert you by SMS or email when a lender checks your report, so you can spot an enquiry you did not authorise.
• Lenders must tell you before they report you as a defaulter.

New to credit?

With no history, you have no score, and some lenders will hesitate. A secured credit card issued against a fixed deposit is a common way to start. Use it lightly and pay the full bill on time every month. Also be careful about becoming a guarantor or co-borrower for someone else's loan: if they miss payments, your score suffers too.

Common myths

• Checking your own score lowers it. It does not; only lenders' enquiries count.
• A higher salary means a higher score. Income is not part of the score; repayment behaviour is.
• Closing all your cards improves your score. It can do the opposite, by raising your utilisation and shortening your history.

Habits that help

• Set up auto-debit for EMIs and card dues so you never miss one.
• Keep card usage well below the limit.
• Do not close your oldest credit card without a reason; it anchors your history.
• Avoid applying for many loans or cards at once.
• Check your reports at least once a year.