A credit score in India is far more than just a simple three digit figure. It serves as a window into an individual’s financial discipline and borrowing habits. It defines an individual’s creditworthiness.
Recent reforms by the Reserve Bank of India (RBI) such as mandating credit bureaus to now update credit scores every 15 days have placed renewed emphasis on the significance for borrowers and lenders alike.
This step has been taken to ensure that changes in credit behaviour are reflected more efficiently. Banks and other financial institutions are now required to inform customers of their credit score and the reasons for any loan rejection.
Not only this, customers are now entitled to free annual online access to their respective credit report and lenders must focus and resolve associated complaints within 30 days.
What does your credit score reveal?
A credit score is a score that generally ranges from 300 to 900. It is a clear and direct reflection of one’s financial habits and repayment capacity. A very high score indicates a consistent record of timely repayments, prudent use of credit and responsible management of the borrowed funds.
On the other hand, lower credit scores often point to missed payments, high credit utilisation, frequent loan applications i.e., all these factors cumulatively signal potential risk to lenders and make them aware of serious consequences of lending funds to such individuals.
Key habits that influence your credit profile and its integrity include:
Note: The scores discussed above are illustrative in nature. For the updated implications and consequences of these scores on an individual basis reach out to your respective credit bureau and their customer service team.
Financial and regulatory implications
The consistent reforms by the RBI, such as the introduction of updating credit scores every 15 days, along with other similar mandates has further streamlined the loan approval process in the country.
Such steps will ensure that borrowers will be able to access credit faster along with the possibility of lower interest rates for those with strong credit profiles. Furthermore, for financial institutions these changes facilitate more accuracy in risk assessment and foster greater trust in the lending ecosystem.
Broader economic context
Hence, the proactive stance of the regulator aligns with the nation’s ongoing efforts to promote financial inclusion and transparency in the financial sector. This gains traction as credit is now becoming increasingly central to economic growth and individual aspirations.
Due to the same, understanding and improving one’s credit score is now more critical than ever. These developments are set to empower consumers, enhance lender accountability and contribute to a more robust financial system.
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 only intends 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 a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.