Have you ever wondered how banks and lenders decide whether to approve your loan or what interest rate you'll be charged? It all comes down to a three-digit number that holds immense power in the financial world - your credit scoring. 


Your credit score serves as an important indicator of your credit history's condition, and it holds the potential to influence your eligibility for accessible credit options as well as lower insurance premiums. To assist you in enhancing your creditworthiness and bolstering your overall financial health, we present a comprehensive guide covering all the essential aspects of credit scores.


What is a Credit Scoring?


A credit score is a three-digit number, typically ranging from 300 to 900, that serves as an indicator of their creditworthiness. It is derived from the person's credit report, which encompasses their history of both secured and unsecured loans, including credit card usage. This record of loans, termed credit history, is compiled and maintained by independent financial entities known as credit bureaus.


Various countries have their respective credit bureaus responsible for overseeing the credit histories of individuals and businesses. In India, the Reserve Bank of India (RBI) has granted licenses to four credit bureaus. The three biggest bureaus in the credit industry are Equifax, Experian, and TransUnion.


It's important to note that you don't have just one credit score; you likely have a few, and they may vary slightly. This is because two major companies calculate these scores, which we'll discuss further below.


While the highest possible credit score is 850, there's not a significant practical difference between having a "perfect" score and an excellent score in terms of the rates and products you can qualify for. In simpler terms, don't get overly concerned about striving for an 850 score, especially because scores tend to naturally fluctuate over time.


What is the difference between the FICO score and VantageScore?


The primary difference between a FICO score and a VantageScore lies in the companies that generate them. The FICO score is the most widely recognized, while its main competitor is the VantageScore. Both utilize a credit score range of 300 to 850.


Furthermore, each company has various versions of their scoring formula. The most commonly used models are VantageScore 3.0 and FICO 8.

Both FICO and VantageScore draw from the same pool of data, but they may weigh this information slightly differently. Typically, they move in sync; if you possess an outstanding VantageScore, your FICO score is likely to be high as well.


Why are my FICO score and VantageScore different?

The reason for the disparity between your FICO score and VantageScore lies in the dynamic nature of credit scoring. Think of a credit score as a snapshot; it can shift each time you access it. This fluctuation may be influenced by factors such as which credit bureau provided the data for the score, or even the timing of when the bureau furnished it. Furthermore, Not every creditor sends account activity to all three bureaus, so your credit report from each one is unique.


What are the ranges for credit scores?

Although each creditor establishes their own criteria for acceptable scores, the following general principles apply:


Ranges of credit scores


In general, a credit score of 720 or greater is regarded as outstanding.


A credit score between 690 and 719 is regarded as good.


Fair credit is 630 to 689 points.


And credit ratings of 629 or below are considered terrible.


In addition to considering your credit score, creditors may also consider your income and other debts when deciding whether to approve your application.


What factors impact your credit scoring?

The elements influencing your credit scores are taken into account by the two primary credit scoring models, FICO and VantageScore. While they consider many of the same factors, they may assign slightly different importance to them.


In both scoring systems, two key factors hold the most significance:


Payment History: 

Making on-time payments is essential. If you miss a payment by 30 days or more, it may negatively impact your credit history for years to come.


Credit Utilisation: 

This phrase describes the amount of credit that is currently being used. Less than 30% of your credit limits should be used, and lower utilization is preferable. You can take action to lower your credit utilization.


Although these factors have a lesser impact on your score, they're still noteworthy:


Credit Age:

The longer you've been using credit, and the higher the average age of your accounts, the more favorable it is for your score.


Credit Mix

Scores tend to favor individuals with more than one type of credit—such as a traditional loan alongside a credit card.


Recent Credit Applications

Applying for credit can lead to a temporary decrease in your score due to a hard inquiry on your credit report.


How to raise your credit score?

What factors determine your credit score? Simply put, creditworthiness. What does this signify, though? Your credit score is an effort to forecast your monetary tendencies. As a result, things that affect your score also highlight trustworthy strategies for raising it:


  • Pay bills on time
  • Maintain credit card balances at no more than 30% of the available credit, if possible.
  • Keep older credit cards open to preserve the average age of your accounts, and think about using a combination of installment loans and credit cards. 



Understanding credit scoring is like having a secret map to navigate the financial world. Your credit score is like a report card for how you handle money. It affects your ability to get loans, buy a home, and even get a good job.


Remember, keeping an eye on your credit score and using credit responsibly can open doors to better opportunities. Paying bills on time, managing debt wisely, and keeping an eye on your credit report are like little superpowers that can boost your score. Also, SlideTeam has prepared a 100% editable PPT on the same, all you need to do is download it.



Q1: What is a credit score?

A credit score is a numerical representation of an individual's creditworthiness. It is based on their credit history, which includes factors like payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. Lenders use this score to assess the risk of lending money to a borrower.


Q2: How is a credit scoring is calculated?

Credit scores are calculated by credit bureaus using algorithms that weigh various aspects of a person's credit history. Each bureau may have its own scoring model, but commonly used models include FICO and VantageScore. The exact formula is proprietary, but generally, payment history, credit utilization, length of credit history, types of credit, and recent inquiries play significant roles.


Q3: What is considered a good credit score?

Credit scores typically range from 300 to 850. A "good" credit score is generally considered to be 670 or higher. However, specific definitions may vary depending on the lender and the scoring model they use. Higher scores are usually associated with lower credit risk.


Access to Free PPT on Credit Scoring