What is Credit Score & Why it is Important?

Whenever you think of borrowing a loan, or applying for a loan, ‘credit score’ would be the first thing that lenders would ask you for. Well, the question is, what is credit score and what makes it so important for banks and lending institutions? 

Credit score is indeed one of the most important factors taken into consideration by banks and financial institutions. Owing to this, it becomes equally important for borrowers to keep a close eye on their credit score in order to get approved for their desired loan or credit card.

In this blog, let’s talk about what a credit score is, why it is so important and how it is considered to be a major deciding factor when it comes to getting approved for a credit card or a loan. 

What is Credit Score?

A credit score is a number that represents a borrower’s credit history numerically. The credit score is generated on the basis of multiple factors such as pending loans, credit card’s transaction history, credit repayments, etc. Looking at these and multiple other factors, banks and lending institutions whether or not they would go ahead with the borrower’s loan or credit card application. 

  • The credit score is a three-digit number that ranges from 300 to 900
  • A number closer to 900 is considered best whereas a number that is lower than 650 is considered questionable and requires one to work hard to get the desired loan or credit amount
  • To get the desired loan amount at a lower interest rate, it is important for one to strictly maintain a credit history
  • Banks, financial institutions, lenders, and others keep a close eye on one’s credit history as a deciding factor
  • Even though there are multiple other factors that are taken into consideration at the time of approval of a credit card or a loan application, the credit score holds the most value

What is a Good Credit Score?

The credit score is a numeric summary of the user’s creditworthiness, ranging from 300 to 900. The higher the credit score, the better it is for a borrower. Here are the details of the credit score values and their implications-


Credit Score Health


  • Bad CIBIL Score
  • Shows irregular payment habits
  • Payment defaults
  • High credit dependency
  • Risk of turning into a defaulter


  • Fair CIBIL score
  • Irregular payment behaviour
  • Hard inquiries


  • Acceptable CIBIL score
  • Strict & responsible payment habits
  • Error-credit history
  • Eligible for credit cards & loan
  • Lesser risk of turning into a defaulter
  • Expected higher interest rate


  • Excellent CIBIL score
  • Timely & responsible payment routine
  • No default payments
  • No outstanding balance
  • High negotiation capabilities
  • Lesser interest rate
  • Clean credit history
  • Error-free credit history

Why Should You Have a Good Credit Score?

Here are the following benefits of a having good credit score –

  • Low interest rates

Having a decent credit score on the side makes the user qualify for a low interest rate against loans and credit cards, making it easier for the borrower to pay the amount without much trouble. Hence, it is advised that if you plan to opt for a loan or credit card, ensure the habit of checking credit score timely

  • Instant loan & credit card approval

A good credit score proves the credit worthiness of the borrower; hence, users with a good credit score enjoy the timely approval of loans and credit cards. Borrowers with lower or poor credit scores, a major number of times are turned down by lenders, banks, and financial institutions as they cannot be trusted on their credit history

However, there is no sure-shot guarantee of getting loan and credit card approval even after having a desirable credit score. It is important to note that certain other factors are also considered for borrowing loans or buying credit cards. 

  • Negotiation power

A credit score close to 900 is considered excellent as it gives the power of negotiation with the interest rate, or new loan amount. This implies that an excellent credit score holds the capability to increase the borrower’s bargaining power. Other than that, the borrower can also avail of special discounts, deals, and offers just by scoring a good credit score. 

Read More: Can I Get a Loan With a Credit Score of 550
  • Higher approval amount

Depending upon the borrower’s credit score and his/her income, banks and lending institutions decide the loan amount to offer to the borrower. Having a good credit score on the side allows the banks to lend a higher loan amount to the borrower. However, in situations when the borrower asks for a higher loan amount but has a low credit score, he/she may get it approved at a relatively higher interest rate.

  • Acquiring the best credit cards

A good credit score makes one eligible for the best credit cards available in the market. These cards are decked up with the lowest interest rates, rewards, deals & discounts, cashback offers, and lots more. Next time when you think of getting goodness loaded with numerous benefits, make sure you are in the habit of timely payment of credit amount and loan EMIs. 

  • Ease of utilities

There are utility firms that prefer to look for the user’s credit reports and scores in order to understand if he/she will be able to pay the bills on time or not. In case of a low credit score, it becomes mandatory for the borrower to deposit a security amount. All these benefits can be cherished by the users only if they have a neat and strict repayment history, which makes for a good credit score. Remember, the better the credit score is, the higher will be the chances of availing multiple benefits. 

What are the Factors Affecting Credit Score?

There are various factors that affect the borrower’s credit score. However, these factors, when rectified, can yield positive results too. Here’s how-

  • Payment History

Your payment history reflects how sincere you are when it comes to payment of loan EMIs or credit amounts. Any delayed payment, outstanding amount, or the like will have a direct impact on your credit score. Since, lenders and banks offer the most priority to the user’s credit score before getting started with the loan approval procedure, it is important to develop the habit of timely payments of EMI and credit card balances.

  • Credit Utilization Ratio

CUR or the Credit Utilization Ratio is the amount used out of the total credit amount provided by the bank. Spending around 30% of your total credit amount is considered apt. However, expenses made more than that or even equal to the given amount impacts in lowering the credit score. This is because spending too much on your credit card shows that you rely heavily on it, thereby depicting your dependency on credit which hampers your creditworthiness.

  • Credit Types

Credit accounts are of two types- Revolving accounts and Installment Loans. A balance between both these types of accounts helps in improving credit score. The balance matters because it shows how you are managing both the accounts and taking responsibility for the same. 

  • Credit Inquiries 

A credit inquiry basically refers to a credit check. A credit inquiry is made every time a user submits a credit-based application. When a consumer checks his/her credit report, it is said to be a soft inquiry, which does not impact the credit score. However, inquiries that are made by the lenders when consumers apply for credit are not soft inquiries. When such inquiries are made multiple times, within a short span of time, it hampers the borrower’s credit score. Hence, it is advised not to make unnecessary inquiries about new loans or credits. 

How to Check Credit Score Online?

Multiple financial applications allow borrowers to check their credit score. It is also suggested that you keep a check on your credit score and identify whether you need to maintain or improve it. 

Paytm is one such mobile application that allows you to check your credit score in the following simple and easy steps-

  • Open the Paytm Application
  • Go to the ‘Featured section’
  • Click on ‘See All’
  • Next, you need to click on ‘Check Credit Score’
  • Enter the required details like DOB, PAN and others 
  • If you are a first time user on the application, then you will be sent an OTP for verification purpose
  • After entering the OTP, click check your ‘Credit Score’
  • Your credit score will be displayed on the next screen that appears
How to improve my credit score?

To improve your credit score, you must do the following-

  • Make timely payment of bills, credit amount, and loan EMIs
  • Do not delay your payments
  • Keep your credit history clean, strict and error-free
  • Don’t perform too many credit inquiries
  • Maintain a balance between secured and unsecured loans
  • Try not to leave any outstanding loan amount
  • Stick to the correct usage of credit utilization ratio
  • Activate timely reminders of your due dates to avoid late payments
How to check credit score online?

There are many ways to check credit scores online. You can log in to the Paytm app or sign up to the CIBIL website.

Here is how to check your credit score through the Paytm application-

  • Log in to the Paytm application
  • Check ‘Featured Section’
  • Click on ‘See All’
  • Fill in the required information like PAN, DOB
  • Click on ‘Check Credit Score’
Are there charges for generating credit scores?
No, there are no charges for generating credit scores. You can check your credit score online, for free. There are multiple mobile applications and websites that let you generate your credit score for free. Paytm is one such application.
Why is credit score so important?
A credit score is one of the most important factors to be considered while applying for a loan or starting with credit card operations. Even though the credit score is not the only parameter that decides your loan or credit card approval; however, it remains one of the most important factors. Any bank, financial institution, or lender will take the first look at the credit score of the applicant before providing them with the desired loan.
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