A bad credit score can immensely restrict access to personal loans and credit cards, and even limit employment opportunities in the financial sector. Therefore, it is imperative to understand what constitutes a poor rating in India, why it matters, and the best recovery steps and means to ensure that your credit score remains robust.
What constitutes a poor credit score?
Credit agencies such as CRIF High Mark, CIBIL, and Equifax, among others, showcase credit score ranges that generally span from 300 to 900. A score below 550-600 is considered weak or falls under the very poor category, thus indicating a history of delayed payments, prior defaults, missed personal loan EMIs, and similar credit score-impacting behaviours.
A credit score between 550 and 649 is considered to be fair, while any score over 700 is regarded as good. Furthermore, a score in the range of 750 to 900 is the most optimum credit score any aspirational borrower can have.
Note: These credit scores discussed above are illustrative in nature. Contact your credit bureau for exact scoring models.
Why does a low credit score matter?
Lending institutions increasingly rely on credit scores to grant personal loans at reasonable interest rates. Even according to reports, candidates have been denied banking jobs due to poor credit history and weak financial credibility.
Legal disputes have confirmed that negative scores from personal loan defaults can block recruitment even in the public sector. In addition, rapidly growing usage of small loan applications along with a rise in delinquencies are influencing a move towards daily credit reporting by regulators. The focus is simply to ensure that loan defaults can be kept in check and credit instruments are utilised responsibly by borrowers.
Credit bureaus and their role in your score
Credit bureaus such as CIBIL, CRIF High Mark, Experian and Equifax collect and maintain financial data to generate credit reports. These credit bureaus track personal loan defaults, repayments, credit utilisation ratio and inquiries to create a credit score that lending institutions rely on to analyse the borrowers’ creditworthiness and decide on personal loan terms and conditions.
Outlook for recovery
Recovery timelines generally vary; minor issues may roll off within months, but serious defaults can remain on records for years. However, with disciplined behaviour, sincere commitment and active monitoring, credit scores can often improve significantly over 4–8 months.
For all personal finance updates, visit here
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 is intended to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with risks such as high interest rates and hidden charges. Please consult a certified financial advisor before making any credit decision.