Is maintaining a credit score of 750 for home loans, car loans or personal loans enough?

While a good credit score can improve your loan approval chance, typically, a score of 750 and above is considered healthy by lenders and can facilitate faster loan approvals. You may not get a loan unless you adhere to some critical factors such as income, employment history, and debt-to-income ratio (it is calculated as monthly debt payments divided by your gross monthly income), and the requested loan amount also plays a role in the decision-making process.  

Shreyans Nahar, Co-founder and CEO of Finsire, says, “Credit scores in various developed economies are the go-to metric: Be it buying a house, getting an education loan, renting a new apartment, or even getting a new job. India is still in its nascence stage for credit score as a metric.” 

What is a credit score? It is a three-digit number that indicates your creditworthiness. When assessing your loan application, lenders consider your credit score to ascertain your repayment capability, be it for a loan, or credit card. Credit bureaus like Credit Information Bureau (India) Limited (CIBIL) and Experian collect data about your loan or credit card from lenders to compute the score.  

Nahar says, “The minimum credit score required for personal, home, and car loans varies depending on the lender. However, a credit score of 700 or higher is generally considered good and may qualify you for the best interest rates. A credit score of 600 or lower is considered fair and may result in higher interest rates. A credit score of 500 or lower is considered poor and may make it difficult to qualify for a loan."  

However, you must know that credit score is not the only factor lenders consider when reviewing your loan applications. 

Says Adhil Shetty CEO of BankBazaar.com: “There are certain fundamental factors which credit bureaus assess when calculating your credit score. These include your payment history, credit utilisation pattern, credit type, credit duration, and hard credit inquiries about you. However, the credit score calculation method may vary slightly for different credit bureaus.” 

Let’s understand how each of these factors reflects credit-consumption behaviour. 

Payment history: It is among the most critical factors influencing your credit score. The credit bureau evaluates your payment record to assess if you have been servicing your loan on time. Late payments, defaults, or accounts sent to collections can lower your score significantly.   

Credit utilisation or credit exposure: Credit utilisation ratio (CUR) or credit exposure is the percentage of credit you use out of the total credit that is extended to you. A rule of thumb to maintain a healthy credit score is to keep your CUR under 30%. A high CUR can portray you as credit hungry or financially reckless.   

Credit duration: The duration you’ve held your credit accounts also influences your credit score. A long and healthy credit history demonstrates responsible management of credit. Building a credit history while you’re young can ease the path to obtaining future credit.   

The number of hard inquiries: When a lender pulls your credit report to assess your creditworthiness for a loan, it is known as a hard inquiry. Each such enquiry is recorded on your credit report and is visible to all lenders who access your report. Multiple hard inquiries can signal towards financial mismanagement and negatively impact your credit score and creditworthiness.  

Ways to improve your credit score 

Here are several things you can do to improve your credit score. 

Bill payment: Paying your bills on time is essential in determining your credit score. Make sure to pay all your bills on time, in full, each month. 

Keep your credit utilisation low: Credit utilisation is the amount of debt you have compared to your total available credit. Experts say one must aim to keep their credit utilisation below 30%. You can do that by spreading your expenses across multiple credit cards. "Having a mix of credit types, such as credit cards and loans (both secured and unsecured), can be beneficial. But, be mindful of your fund requirements and avoid borrowing unnecessarily," said Shetty. 

Lengthen your credit history: The longer your credit history, the better. Try to keep your oldest accounts open and in good standing. 

Limit credit applications: Each time you apply for credit, it results in a hard inquiry on your credit report, which can impact your score. Avoid making multiple credit applications within a short period. Instead, be selective and apply only when necessary. "Applying for too much credit can hurt your credit score. If you need to apply for new credit, do so in moderation," said Nahar. 

Dispute any errors on your credit report: If you see any errors on your credit report, dispute them immediately. It can help to improve your credit score. Shetty said, “You must check your credit report regularly. When you left it unchecked, errors and inaccuracies in your credit report can lower your credit score. To avoid this from happening, review your credit report frequently. Also, you must immediately flag any errors or discrepancies to the credit bureau so that the issue gets resolved.”   

Thus, you must understand that building a good credit score takes time and effort. However, it is worth it in the long run. A good credit score can help you get approved for loans, lower your interest rates, and save money.