Discover actionable tips to rebuild your credit score. Explore how timely payments, reducing credit utilisation, and responsible financial habits can help. Check out our detailed guide for
A bad credit score can significantly affect your financial opportunities and decisions. But what does a bad credit score mean? It reflects your creditworthiness and is often used by lenders to assess the risk of extending credit to you. Understanding the implications of having bad credit can help you take steps to improve your financial health and access better opportunities in the future.
A bad credit score indicates poor creditworthiness, reflecting your history of repayments, credit utilisation, and overall financial behaviour. Lenders perceive individuals with a bad credit score as high-risk borrowers, which can lead to challenges in obtaining loans or credit approvals. But what does it mean to have bad credit? It essentially means your past credit behaviour may not inspire confidence in lenders.
Different credit bureaus in India—such as CIBIL, Experian, Equifax, and CRIF High Mark—have their own scoring models, which can result in slight variations in what constitutes a "bad" score. While the range differs, scores below a certain threshold across all bureaus typically fall into the bad credit category.
Here’s a table outlining the ranges for each bureau:
Credit Bureau |
Score Range |
Bad Credit Score Range |
CIBIL |
300 - 900 |
Below 681 |
Experian |
300 - 850 |
300 - 579 |
Equifax |
300 - 900 |
300 - 579 |
CRIF High Mark |
300 - 900 |
300 - 580 |
Here are some of the common factors and bad practices that can lead to a poor credit score:
Late or missed payments on credit cards, loans, or utility bills can lower your score significantly. Payment history is one of the most crucial factors in determining creditworthiness.
Ignoring your credit score can prevent you from identifying errors or fraudulent activities in your credit report, which could negatively impact your score.
Using a large percentage of your available credit limit shows over-dependence on credit. A utilisation rate above 30% can harm your score.
Defaults have a severe and long-lasting impact on your credit score, making it difficult to regain financial trustworthiness.
Each application results in a hard inquiry, which can reduce your score temporarily. Multiple inquiries within a short span can make you appear desperate for credit.
Depending solely on one type of credit, such as personal loans, without managing a mix like credit cards or secured loans, can affect your score.
Closing long-standing accounts reduces the average age of your credit history, which can negatively impact your score.
Mistakes like incorrect personal information, unrecorded payments, or duplicate accounts on your credit report can unfairly lower your score if not disputed and corrected.
Consistently carrying overbalances on your credit card without paying them in full can increase your credit utilisation ratio and reduce your score.
Loan settlements, where the lender agrees to accept less than the full amount owed, are noted in your credit history and can lower your score significantly.
Here are some key disadvantages:
With a bad credit score, your options for credit cards are limited to basic or secured cards. You may miss out on premium cards offering better benefits and rewards.
Lenders charge higher interest rates to borrowers with low credit scores to offset the perceived risk. This increases the cost of borrowing significantly.
Credit card rewards such as cashback, travel points, or discounts may not be available to individuals with a poor credit history.
Many lenders reject applications from individuals with bad credit scores due to concerns about repayment ability.
Even if you qualify for a loan or credit card, your credit limit will likely be lower than someone with a good credit score.
Some landlords check credit scores before leasing properties. A bad score may reduce your chances of securing a rental property.
Certain employers, especially in finance-related roles, may review credit history as part of their hiring process. A bad credit score could hinder job prospects.
In times of financial crisis, having a bad credit score can restrict your access to quick loans or lines of credit.
Lenders may require a co-borrower or guarantor for loan approval, which adds complexity and dependency to the borrowing process.
The inability to access affordable credit when needed can lead to financial strain and limited future opportunities.
Here are some effective tips to boost your credit score:
Timely payments on loans, credit cards, and utility bills are essential for improving your credit score.
Aim to use less than 30% of your available credit limit to show responsible credit usage.
Review your credit report to identify and correct errors or discrepancies that may negatively impact your score.
Pay off overdue loans or credit card balances to reduce your debt burden.
Space out your credit applications to prevent hard inquiries from lowering your score.
Have a balance of secured and unsecured loans to demonstrate your ability to manage different types of credit.
Keep your oldest accounts active to maintain a longer credit history, which positively affects your score.
Using a secured credit card responsibly can help rebuild your credit score over time.
If you are struggling with repayments, discuss restructuring options with your lender instead of defaulting.
A good credit score in India typically ranges between 700 and 900. It shows you are financially responsible, increasing your chances of loan approval and lower interest rates.
While immediate improvement is not possible, you can take steps such as paying off outstanding dues, correcting errors in your credit report, and reducing your credit utilisation ratio to see gradual improvements.
A poor credit score can lead to loan rejections, higher interest rates, limited credit card options, and difficulty in renting property or securing employment in certain sectors.
Difficulty in accessing loans or credit cards
Higher borrowing costs due to increased interest rates
Limited financial flexibility during emergencies
Reduced credit limits on approved loans or cards
Negative impact on future financial opportunities like buying a home or a car
The biggest disadvantage of credit is the potential to accumulate debt if it is not managed responsibly. High interest rates and late payment penalties can lead to financial strain and a poor credit score.