Money

How does your credit score really work?

A credit score is a single number — usually somewhere between 300 and 900 — that tells lenders one thing: how likely are you to pay back what you borrow? It's not about how rich you are. Plenty of high earners have mediocre scores, and modest earners have excellent ones. It's about *behaviour*.

What the number is really saying

Lenders can't read your mind, so they read your track record. Every loan, credit card, and EMI you've had gets reported to credit bureaus, which crunch your history into that one score. A high score says "reliable, lend freely." A low score says "risky, charge more — or say no."

What moves it (most to least)

• Payment history — the big one. Do you pay on time, every time? A single missed payment can dent your score for months. This matters more than anything else.
• How much of your limit you use (your *credit utilisation*). Maxing out cards looks desperate. A good rule of thumb: keep balances under ~30% of your limit. Using ₹9,000 of a ₹10,000 limit hurts; using ₹2,000 doesn't.
• Age of your credit. A long, steady history is reassuring. That's why closing your oldest card can actually *lower* your score.
• New applications. Each time you apply, lenders do a "hard check," and several in a short span looks like you're scrambling for money.
• Your mix. A healthy blend of loan types (a card, a vehicle loan, etc.) handled well looks better than just one.

The trap most people fall into

Paying only the minimum on a credit card keeps you "on time," so it protects your score — but the rest of the balance starts compounding interest against you. Good for the score, brutal for your wallet.

How to build it, simply

• Pay every bill on time — set up auto-pay if you forget.
• Keep card balances low relative to the limit.
• Don't open lots of new accounts at once.
• Keep old accounts open.
• Be patient — scores are built over months and years, not days.

The whole system is just a giant, automated answer to one question: *can we trust you to pay us back?* Behave like someone who can, consistently, and the number follows.