Understanding Credit Score Calculation
A credit score is a three-digit number that reflects your financial health and repayment ability. Knowing how credit score is calculated is crucial because it directly impacts your loan eligibility, interest rates, and overall credibility in the financial system. Lenders use this score to decide whether to approve your personal loan, credit card, or even home loan application.
What is a Good Credit Score Range?
Before diving into the calculation, let’s understand the good credit score range:
| Credit Score Range | Category | Loan Eligibility Chances |
| 750 & above | Excellent Score | Very high approval rate |
| 650 – 749 | Good Score | Moderate approval rate |
| 550 – 649 | Average Score | Difficult approval, higher ROI |
| Below 550 | Poor Score | Very low chances |
Most lenders, including digital platforms like Olyv, consider a score of 750 and above ideal for quick approvals.
How is Credit Score Calculated? – The Key Factors
Credit bureaus calculate credit scores using different algorithms, but the following factors remain standard:
1. Repayment History (35%)
Your repayment track record is the most important factor. On-time payments boost your score, while missed EMIs reduce it.
2. Credit Utilization Ratio (30%)
How much credit you use compared to the total limit matters. Keeping usage under 30% helps maintain a good score.
3. Credit Mix (10%)
A healthy mix of secured loans (like home loans) and unsecured loans (like personal loans) strengthens your score.
4. Length of Credit History (15%)
The longer your credit history, the higher your score. Even old accounts add value if they show consistent repayments.
5. New Credit Enquiries (10%)
Frequent loan or credit card applications can lower your score as they show a higher risk.
Why Should You Care About Credit Score Calculation?
- Determines your loan eligibility
- Affects the rate of interest you get on loans
- Plays a role in credit card approvals
- Impacts the speed of loan disbursement
With platforms like Olyv, your credit score is instantly checked when you apply, ensuring faster processing and transparency.
How to Improve Your Credit Score Effectively
- Pay EMIs and credit card bills on time
- Keep credit utilization below 30%
- Avoid unnecessary loan applications
- Maintain old accounts with good repayment history
- Regularly check your score to track improvements
FAQs on Credit Score Calculation
Q1. Why is a credit score calculated this way?
Because repayment history and utilization show your ability to manage debt responsibly.
Q2. How long does it take to improve a credit score?
It usually takes 3–6 months of disciplined repayment and low utilization.
Q3. Why is a good credit score range important for personal loans?
A score above 750 ensures quick approvals and lower interest rates.
Q4. How often should I check my credit score online?
At least once every 3 months to monitor changes and spot errors.
Q5. How can Olyv help me if my score is low?
Olyv provides tools and EMI calculators that guide borrowers in managing finances and improving scores.
Conclusion
Now that you know how a credit score is calculated, it’s clear why it holds such importance in financial planning. A good credit score range not only gives you better loan offers but also strengthens your financial credibility. By tracking your score regularly and maintaining disciplined repayment habits, you can unlock easier and faster access to personal loans and other credit facilities.
