How is Credit Score Calculated?

Credit Score helps in the assessment of the creditworthiness of the borrower.  Banks and financial institutions will check your credit score before approving your loan. You can check your credit score online by filling in basic information about yourself. 

A credit score is calculated by the credit rating agency. It is not an easy task. They have to take into consideration various factors to arrive at an individual’s credit score. In this article, we will learn the nitty gritty of the credit score.   

What is a Credit Score? 

A credit score is a three-digit number ranging from 300 to 900 which is used by banks and financial institutions to determine whether to grant a loan/credit card to the potential borrower or not. The credit bureaus use your credit history and several other factors to calculate your credit score.

In India, RBI has allowed four credit information companies to calculate credit scores. They are TransUnion Credit Information Bureau India Limited (CIBIL), Experian, CRIF Highmark, and Equifax. Each of these credit rating agencies has a different formula to determine your credit score.

Knowing your own credit score is not a tough task. You can calculate your credit score online. You need to fill in some information and it will give you your credit score.

What is a Good Credit Score?

In general, a credit score ranging from 700-750 is considered a good credit score. However each lender has their own grading system and risk assessment model. Some may approve your loan application even at a credit score of 700 whereas for some other lender, you need to have a credit score of at least 750.

However, the general credit score grading is as under: –

  1. 300-579 – Poor
  2. 580-669 – Fair
  3. 670 – 739 – Good
  4. 740 – 799 – Very Good
  5. 800-850 – Excellent 

Banks and lenders rely a lot on credit scores for loan approval. Monitor your credit report on a regular basis and keep on improving the same for your own healthy financial future.

How is Credit Score Calculated? 

Different rating agencies have different scoring models to calculate the credit score. But all of them consider some common factors while determining the credit score, they are as follows: –

  • Repayment History 

Your repayment history matters a lot in determining your credit score. Almost 35% of your credit score is based on your repayment history. A credit bureau keeps a proper record of your payments towards your loans and credit cards.

Recent payment history that ranges from the last 6 months to 2 years is considered while calculating the credit score. If there is any bounces or late payment then it affects your credit score negatively.

  • Credit Utilization Ratio  

Credit Utilization Ratio (CUR) is also an important factor after repayment history that is taken into consideration to determine your credit score. This contributes to 30% of your credit score. The credit Utilisation Ratio is the ratio determining the total credit that you have used against the overall credit that is available to you. This ratio shall not be greater than 30%.

If it is greater than 30% then it will affect your credit score negatively. So always try that you don’t use the excess credit available to you. Try to avail of credit to the extent of 30% of the credit limit.

  • Credit Age 

Credit age has a medium impact on your credit score. This contributes to 15% of your score. The older is your loan or credit card, the better impact it would have on your credit score. Having a long credit history increases your chances of getting a loan.

This assures the lender that you have been making regular payments for a long time. Opting for a longer tenure for a loan can improve your credit score.

  • Credit Mix 

The kind of credit you opt for is also a factor that is taken into consideration while calculating of credit score. This contributes to 10% of your credit score. There are two basic types of loans i.e., secure loans and unsecured loans. A proper mix of both is necessary for a good credit score.

  • Credit Enquiries 

The number of times you apply for a credit card or loan affects your credit score. This contributes 10% to your credit score. When you apply for a loan or credit card, the bank or financial institution will make a hard inquiry to get your credit score. Such hard inquiries have a direct impact on your credit score. 


There are 5 major factors taken into consideration by credit rating agencies while determining your credit score. As a borrower, you should keep this in mind and maintain a good credit score. So that when you need a loan you don’t face rejection due to low credit score. You can easily calculate your credit score online by filling in some basic information about yourself.

Frequently Asked Questions

  • Who calculates Credit Scores?

In India Credit Information Bureau (India) Limited is one of the popular credit agencies that calculates credit scores. It is known as the CIBIL Score.

  • How much time does it take to improve your credit score?

There is no fixed time limit in which your credit score will be improved. You shall be regular in your EMI payments and not default. If this consistent regular payment is maintained then your credit score can improve in 6 months to one year. In some cases, it may take more than this.

  • What is a bad credit score?

A bad credit score generally falls between 300-579. It becomes difficult for you to get a loan if you have a bad credit score. So always try to keep a good credit score. This can be done by not missing your monthly payments.

  • How do we know if the credit score calculation in the credit report is correct?

Keep on reviewing your credit report on a regular basis. If you find any errors in the report then raise the dispute and report it to the credit rating agency. If this is considered then you will see an update in your credit score.

 References Used: –


Interesting Related Article: “5 Benefits of Having a Good Credit Score