A credit score is one of the most important numbers in your financial life. Whether you want a loan, a credit card, a car on EMI, or even a home loan, lenders always check your credit score first. This score helps lenders understand how reliable you are in repaying money.
A common question people ask is:
“What is a good credit score?”
In this blog, you will learn:
- What a good credit score means
- Different credit score ranges
- Why a good score matters
- How lenders judge your score
- Real-life examples and calculations
- Best habits to build a good credit score
- Mistakes to avoid
This blog is written in very easy language, so anyone can understand it clearly.
What Is a Credit Score?
A credit score is a 3-digit number that usually ranges between 300 to 850.
Higher the number, better your credit health.
Your score is calculated based on your financial behaviour, such as:
- Do you pay your EMIs on time?
- Do you use too much credit?
- How long is your credit history?
- How often do you apply for loans or credit cards?
- What types of credit do you use?
A good credit score shows that you manage credit responsibly.
What Is a Good Credit Score?
Credit scores are usually divided into 5 simple categories:
| Score Range | Category |
| 300 – 579 | Poor |
| 580 – 669 | Fair |
| 670 – 739 | Good |
| 740 – 799 | Very Good |
| 800 – 850 | Excellent |
So, a credit score between 670 and 739 is generally considered “Good.”
If your score is above 740, you fall into the “Very Good” or “Excellent” category, which helps you get even better financial offers.
Why a Good Credit Score Is Important
A good credit score gives you many advantages in everyday life. Here are the main benefits:
✔ 1. Easier Approval for Loans
Banks trust people with good credit scores. So if you apply for a loan, you have a higher chance of approval.
✔ 2. Lower Interest Rates
People with good scores get loans at low interest.
This makes your total repayment amount smaller.
✔ 3. Higher Credit Limit
A good score helps you get a higher credit-card limit.
✔ 4. Faster Loan Processing
Banks process your loan faster because you are seen as a “safe borrower.”
✔ 5. Better Negotiation Power
When your score is good, you can ask your bank for better terms—like lower interest or higher limit—and they may agree.
Example: How a Good Score Saves You Money
Let’s see a simple example.
Imagine two people: Aman and Rahul.
Aman’s Score: 735 (Good)
He applies for a personal loan of ₹2,00,000 for 3 years.
Bank offers him 11% interest.
Rahul’s Score: 590 (Fair)
He also applies for the same loan.
Bank offers him 17% interest.
Let’s calculate the difference
Aman’s Monthly EMI (₹2,00,000 at 11% for 3 years)
Approx monthly EMI = ₹6,560
Total payment = ₹2,36,160
Rahul’s Monthly EMI (₹2,00,000 at 17% for 3 years)
Approx monthly EMI = ₹7,130
Total payment = ₹2,56,680
Total Extra Money Rahul Pays:
₹2,56,680 – ₹2,36,160 = ₹20,520 extra
✔ Both people took the same loan.
✔ But the person with lower credit score paid ₹20,520 more.
This shows why having a good credit score is financially beneficial.
What Affects Your Credit Score?
Your score is calculated based on 5 major factors:
1. Payment History (Most Important Factor)
This simply checks: Do you pay on time?
Late payments strongly reduce your score.
Example:
If your EMI is ₹3,000 and you delay it by 30 days, your score can drop by 50–80 points.
2. Credit Utilization
This means how much of your available credit limit you use.
Example:
If your credit card limit is ₹50,000 and you spend ₹35,000, your utilization is:
35,000 ÷ 50,000 × 100 = 70%
High utilization (above 30%) reduces your score.
3. Credit History Length
Older accounts help build a strong score.
Example:
A person using a credit card for 6 years is rated better than someone using it for only 6 months.
4. Credit Mix
Using a good mix of credit types helps your score.
Two types of credit:
- Revolving credit (credit cards)
- Installment credit (home loan, car loan, personal loan)
People with a balanced mix get better scores.
5. New Credit or Hard Inquiries
Whenever you apply for a loan or credit card, lenders check your report.
Too many applications in a short time lower your score.
Example:
Applying for 3 credit cards in 1 month may reduce your score by 20–30 points.
How Lenders Judge Your Credit Score
Lenders do not look at the score alone.
They also consider:
- Your monthly income
- Your job stability
- Your existing loan amount
- Your repayment history
- Your credit report pattern
- Your debt-to-income ratio (DTI)
DTI Example
Let’s say:
Your monthly income = ₹40,000
Your existing EMIs = ₹12,000
DTI ratio = 12,000 ÷ 40,000 × 100 = 30%
A DTI below 40% is seen as healthy.
When your DTI is high, lenders may reject your loan even if your score is good.
How to Improve Your Credit Score (Simple Steps)
If your score is low, don’t worry. You can improve it by following these easy habits:
✔ 1. Pay EMIs and credit-card bills on time
Payment history is the biggest factor.
Even one missed payment can harm your score.
✔ 2. Keep credit utilization below 30%
If your card limit is ₹60,000:
Use only ₹18,000 or less for the best results.
✔ 3. Do not close old accounts
Old accounts increase your credit age.
✔ 4. Check your credit report regularly
If you find wrong entries or errors, report them immediately.
✔ 5. Avoid applying for too many loans at once
Multiple applications make lenders think you are credit hungry.
✔ 6. Maintain a healthy credit mix
Use both loans and credit cards responsibly.
✔ 7. Increase your credit limit (but do not increase spending)
A higher limit reduces your utilization percentage automatically.
Example:
Limit = ₹40,000
Usage = ₹20,000
Utilization = 50%
If limit increases to ₹80,000:
Utilization = 20,000 ÷ 80,000 × 100 = 25%
Your score will slowly improve.
Common Mistakes That Lower Your Credit Score
Many people unknowingly damage their scores. Avoid these mistakes:
- Paying EMIs late
- Using 70–100% of credit card limit
- Applying for several credit cards in a month
- Not paying the full bill (only minimum amount)
- Closing old credit accounts
- Having too many loans
- Not checking credit report for errors
Example: How Credit Card Behaviour Affects Score
Two friends, Riya and Megha, both have a credit card with a limit of ₹30,000.
Riya’s Spending Pattern
- Uses ₹27,000 every month
- Pays minimum amount only
- Applies for new cards often
Her credit utilization = 27,000 ÷ 30,000 × 100 = 90%
Her score may fall by 20–50 points within months.
Megha’s Spending Pattern
- Uses only ₹6,000 per month
- Pays full bill on time
- Avoids unnecessary loans
Her utilization = 6,000 ÷ 30,000 × 100 = 20%
Her score will improve consistently.
How Long Does It Take to Build a Good Credit Score?
Improving your credit score takes time.
If your score is low, you may need:
- 1–2 months → for small improvements (5–25 points)
- 3–6 months → for moderate improvements (30–70 points)
- 6–12 months → for major improvements
Credit score is built slowly but steadily, based on your habits.
Myths About Credit Scores (Easy Clarifications)
❌ Myth 1: Checking your own score lowers it
✔ Truth: Checking your score does not reduce it.
❌ Myth 2: You need a high income for a good score
✔ Truth: Income has no direct effect on your score.
❌ Myth 3: Closing credit cards increases your score
✔ Truth: It actually reduces your score by lowering credit age and limit.
❌ Myth 4: Paying minimum amount is enough
✔ Truth: Paying minimum amount increases interest and harms credit health.
How to Maintain a Good Credit Score for Life
Once your score becomes good (670+), follow these lifetime habits:
- Always pay bills before due date
- Keep usage low
- Maintain old accounts
- Use credit wisely
- Avoid too much debt
- Keep financial planning strong
Remember:
Your credit score is a reflection of your financial behaviour.
Also Read: Car Insurance Companies: A Simple Guide
Conclusion
A good credit score is one of the strongest financial tools you can have. It helps you get loans easily, enjoy lower interest rates, receive higher credit limits, and build long-term financial security.
A score between 670 and 739 is generally considered good, and anything above that is even better.
With simple habits—like paying bills on time, using less credit, checking your credit report, and avoiding too many new loans—you can build and maintain a strong, healthy credit score.
Improving your credit score takes time, but every positive step you take strengthens your financial future.