Credit Score 101: Everything that you need to know about your “Credit Score”

A Credit Score is nothing but a 3-digit numerical figure that depicts a borrower’s creditworthiness. Meaning, when you apply for a loan or a credit card, your credit score is the first thing that a potential lender gauzes. Thus, the higher your credit score is, the better are your chances of being approved for the loan amount.


A credit score is calculated on the basis of a number of factors (which we will be soon discussing in detail) and is given by an authorized credit reporting agency.

A credit score generally ranges from 300-900; however, it is different for each credit reporting agency.

The three major credit reporting agencies in the U.S are Equifax, Experian, and TransUnion. Further, in Canada, Equifax and TransUnion are the two major credit bureaus. In India, CIBIL is the most widely used and recognized credit reporting agency.

A few examples of credit score parameters:

  • Experian credit score range: 300-850
  • Equifax credit score range: 280-850
  • TransUnion credit score range: 300-850
  • CIBIL credit score range: 300-900

In conclusion, credit reporting agencies differ for each country; thus, even the credit score range is different. However, the only common thing between all of the above agencies is that, the higher your credit score is, the easier it is for you to attain financial assistance from a lender.

(Note: Almost, all of the credit reporting agencies provide a free credit report at least once a calendar year. Check with your credit reporting bureau for more information).


Although, each credit reporting agency has a different set of criteria for calculating credit score; however, the most common factors that influence your credit score ratings are:

 1. Credit repayment history

Your credit history is the perfect reflection of your financial management skills. Thus, it is the first thing that the lender’s notice, and also the most important factor that affects your credit score. A credit reporting agency keeps a monthly track of all your credit card as well as loan EMI(Equated Monthly Installment) repayment activities.  Then the credit reporting agency calculates your credit score after gauzing your past few year’s credit repayment history. Thus, make sure to stay on top of your repayments by applying for an annual free credit report.

 2. Over-use or under-use of available credit

This may sound a bit tricky but your credit score is severely impacted when you either utilize the entire credit amount or you don’t make use of it at all. Because, if you exhaust your entire available credit amount each month, it may indicate that you are in great need of money, and thus, might even default on repayments. Further, when you don’t make use of available credit at all, it becomes difficult for credit reporting agencies to calculate your credit score; as there isn’t much activity available in your credit history. Thus, 20-30% of the available credit is the perfect amount to spend around and improve your credit score.

 3. The length of your credit history and type of credit accounts

If you have a good length of credit history behind you, and if you have made timely repayments, then your credit score will be way better than someone who is just starting-out (has recently applied for his/her first loan, etc.). Further, credit scores are also affected by the type of loan accounts that you have (secured and unsecured type of loans). Generally, an ideal borrower is someone who has a mixed credit portfolio. (someone who has utilized secured as well as unsecured form of financial assistance.)

 4. Type of Credit inquiries

There are generally two types of inquiries initiated about your credit account- soft inquiries and hard inquiries. A soft inquiry is the one in which you either check the credit score on your own, or when a particular financial institution checks it to offer you preapproved loans. On the other hand, when you apply for multiple loans through various lenders, the financial institutions check your credit report to determine your creditworthiness. This type of an inquiry made by a lender is termed as a hard inquiry. A hard credit inquiry negatively impacts your credit score, whereas a soft inquiry doesn’t impact your credit score in any manner.

(Credit score 101: One thing that you must remember while reading the below list is that building a good credit score takes a lot of time and efforts. It is not something that can be done overnight. Thus, you must continually strive to better your financial planning with each passing year.)


  1. Plan-out and repay all your credit card bills and EMIs (equated monthly installments) on time.
  2. Don’t spend more than 30% of your available credit amount. Also, If you are spending over 30% of your allotted credit limit, then it is time to either control your spending or increase your credit limit.
  3. Check your annual free credit report for errors or discrepancies that might lower your credit score, and dispute them with your credit reporting agency.
  4. Avoid applying for multiple loans and credit cards.
  5. Make use of professional credit monitoring bureaus to ensure that your account is safe from fraud and theft. Further, these bureaus also provide you with an insight into how your credit score has changed over the years; thus, helping you plan your repayments.
  6. Apply for different types of credit- personal as well as secured type of financial assistance from lenders.
  7. Don’t close or get rid of those good old debit accounts from your credit report. Because, if you have cleared your old debt in a timely manner, then it will only further boost your credit score.
  8. Make sure that you avoid co-signing a loan for someone who doesn’t make timely repayments. After all, if they don’t repay the loan amount in a timely manner, their default payments will reflect in your credit report and lower your credit score.

[TIP: If you have a thin credit file; meaning, if you haven’t applied for too many loans, then you must opt for Experian boost. This program collects your financial data such as utility payments and banking history (this financial data is normally unavailable in your credit report) and reflects it in your credit report. Thus, helping you increase your credit file size and improve your credit score]

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