In today’s financial landscape, a good credit score is more than just a number—it’s a key to unlocking better borrowing opportunities and managing financial health.

Satish Mehta, Founder of Athena CredXpert (ACX) and the first MD of CIBIL, emphasises how crucial it is to understand and manage your credit score.

Here’s why your credit score matters and how you can keep it in check.

Impact of credit decisions on future borrowings

Your current credit decisions affect your future financial prospects.

“When you take a loan or use a credit card, you impact your cash flow,” says Mehta.

“Your ability to handle future borrowings is influenced by the loan you take today.” As Mehta explains, the loan changes your available cash flow, which can limit your borrowing capacity until your income or financial situation improves.

Moreover, the new loan will affect your credit score, influencing how future lenders perceive your creditworthiness.

Role of credit bureaus

Credit bureaus are essential in the borrowing process.

“A credit bureau is a central repository of credit data,” Mehta notes.

In India, there are four major credit bureaus—Transunion CIBIL, Experian, Equifax, and CRIF High Mark.

These bureaus gather information from banks and financial institutions to create detailed credit reports and scores.

A good credit score can lead to better borrowing terms and lower interest rates, while a poor score might limit your access to credit.

For businesses, maintaining a healthy credit profile is crucial for securing loans and expanding operations.

“Credit bureaus have transformed lending in India, making the process more objective and data-driven,” Mehta adds.

This shift has improved transparency and reduced non-performing assets (NPAs), benefiting both lenders and borrowers.

Why regular credit report checks matter

Even if you’re not currently seeking credit, regularly checking your credit report is vital.

Mehta advises, “Check your report periodically to catch any discrepancies or fraudulent activities early.”

You are entitled to one free credit report per year from each of the four bureaus.

Ensure that all information is accurate and up-to-date to avoid unpleasant surprises when you need credit.

Improving your credit score

Improving your credit score involves a few key strategies:

Timely payments: “Your payment history is the most significant factor in your credit score,” Mehta states.

Consistent, timely payments on loans and credit cards are crucial.

Credit utilisation: Keep your credit utilisation ratio below 30%-40% of your total credit limit. For example, if your credit limit is ₹1,00,000, aim to use less than ₹30,000.

Minimise hard inquiries: Frequent credit applications can lower your score.

Apply for new credit only when necessary and ensure you meet eligibility criteria.

Maintain a diverse credit mix: Manage various types of credit products, like credit cards and personal loans, responsibly to demonstrate your ability to handle different credit forms.

Seeking professional help can also be beneficial if you struggle with managing your credit.

“Credit repair services can provide valuable guidance,” Mehta suggests.

The role of credit scores in financial inclusion

Credit scores also play a crucial role in financial inclusion. “New to credit scores help individuals who have never borrowed before,” Mehta explains.

These scores help lenders assess first-time borrowers, facilitating broader access to credit and promoting financial inclusion.

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