The Importance and Benefits of a Good Experian Credit Score

credit score

An Experian credit score is an important parameter to measure an individual’s creditworthiness. It is the first thing top lending institutions check when they receive a loan application from an aspiring borrower. It gives them an idea of whether the applicant can repay the borrowed sum in time. Hence, maintaining a high credit score is important.

Credit bureaus calculate the credit score after considering several factors, like the individual's credit exposure, payment history, credit inquiries, credit mix, and credit length. One should know that the credit score ranges from 300 to 900. Generally, lending institutions expect a credit score of 630 or above as ideal for Personal Loans. So, loan seekers should always be vigilant and take measures to bring it closer to 900. Let's look at the importance and benefits of having a good Experian credit score.

What is the Experian Credit Score?

Experian is one of the four credit bureaus in India licensed by the Reserve Bank of India. It records all credit transactions each Indian citizen performs and ranks them based on their credit usage, repayment history, financial decisions, credit length, credit mix, etc. The numerical figure ranges from 300 to 900. A score above 630 is considered good and signals low risk for loan providers. Eventually, it creates a higher chance of obtaining a loan on favourable terms and conditions.

How Does Experian Calculate Credit Scores?

Each credit bureau has unique methodologies to calculate credit scores. Some lending institutions accept credit scores from one credit bureau, while others prefer another. That is why each individual might have different credit scores from different credit bureaus. Some qualitative factors that Experian keeps in mind while calculating credit scores include repayment history, types of credit borrowed, borrowed amount vs eligibility, credit length, outstanding balance, secured and unsecured borrowing, short- and long-term borrowing, repayment discipline, etc.

While each credit bureau uses its unique model to calculate credit scores, essential parameters with their assigned weights are as follows:

  • Repayment history: 35%
  • Credit utilisation rate: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Diversity in the credit mix: 10%

Importance of Having a High Experian Credit Score

Typically, the higher the credit score, the likelier you qualify for a loan with lower interest rates, high loan amounts, lower fees, and other favourable terms. Let's look at the importance of having a high Experian credit score above 630.

Lower Interest Rates: Lending institutions offer loans according to each loan seeker's risk profile. It ensures that applicants with good credit scores can obtain easy loans at lower interest rates, lowering the cost of loans for them. Lower interest rates are crucial as even a minor difference of a few percentage points can significantly impact the EMIs and lead to considerable financial savings. So, cheaper loan cost is one of the major benefits of having a good Experian credit score.

Faster Credit Approval: A credit score above 630 indicates an individual’s creditworthiness. It allows lending institutions to make fast decisions regarding loan applications and quickly support applicants in financial emergencies. Consequently, a good credit score means quick funding access through more rapid approvals.

Bigger Loan Sanctions: Bigger loan sanctions often translate into higher risk for the loan providers. That is why they insist on the applicants having a good credit score. That is because a good credit score indicates responsible credit behaviour and reduces the creditor's risk element. With a credit score of 630 or above, the lending institution gets an assurance of timely repayment. So, they are willing to grant a bigger loan sanction.

Access to Pre-Approved Loan Offers: Pre-approved loan offers allow quick access to the required funds when needed. However, lending institutions do not offer these loans to all customers. They perform a detailed analysis of each customer's credit history, balance check, etc., before sending them a pre-approved loan offer. Those with good credit scores have higher chances of obtaining pre-approved loans from lending institutions.

Longer Loan Tenure: Most borrowers prefer longer loan tenures due to low EMI amounts. They help borrowers manage their monthly finances better and keep EMIs conveniently payable. However, approving a loan for a longer tenure is riskier for lending institutions. Typically, they want to avoid putting their money at risk for longer periods. However, those with good credit scores can use a personal loan EMI calculator and easily get approved for longer tenures. It reduces their EMI burden and keeps repayments easily manageable.

Good Reputation as a Trustworthy Borrower: An individual with a good credit score does not have to look far for lucrative loan offers. Whether one is planning to take a new loan, refinance an existing debt, or increase the credit limit, they are preferred customers for lending institutions due to their good credit habits. In fact, offers come to them when their credit score showcases them as trustworthy borrowers.

Tips to Maintain a High Credit Score

Here are a few ground rules an individual can use to maintain a high Experian credit score:

  • Control Credit Utilisation Ratio: Maintaining a low ratio of credit limit to credit spending is advisable to ensure you do not overshoot the limit.
  • Borrow Diligently: Only take loans you can manage easily based on the funding requirement and repayment capacity.
  • Retain Old Accounts: A long credit history is a positive sign of an individual’s credit management calibre.
  • Avoid Defaults: Always use a personal loan EMI calculator to select a tenure with budget-friendly EMIs and pay them appropriately.
  • Regularly Monitor the Credit Report: Constant monitoring enables borrowers to stay vigilant and take a corrective course at the right time.

The importance of a high Experian credit score is becoming more evident among Indians with each passing day. It makes people's lives simpler and gives them easier access to financial services and products. You can check your Experian credit score for free on the websites of leading NBFCs. If it is poor, you can start improving it at the earliest by taking necessary measures.




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