Credit Score: Keeping It Accurate for Lower Loan Rates

For loan takers, one of the most important parameters with which lending institutions (banks and NBFCs) make their decisions is the credit score of those individuals. These credit scores are calculated by many bureaus. In India, we have the most prominent among them in CIBIL (part of TransUnion). Other bureaus include Experian, Equifax and CRIF High Mark. Typically, scores range from 300 to 900 based on individual credit worthiness.

Credit scores determine the interest rate at which a bank or an NBFC is likely to offer you a home loan or a personal loan, for example.

We aren’t going to dwell on how to maintain a good credit score. These are well-known steps – pay your EMIs in full and on time, don’t exhaust your credit card limit each month, keep your loan-to-income ratio low, avoid too much debt and so on.

Rather, we highlight a few important aspects of the credit score. Specifically, we indicate how interest rates can vary significantly based on credit scores.

And because accuracy is very important with regard to your credit score, we look at how to get your annual credit report from a bureau and steps to promptly rectify any errors so that you don’t get short-changed.

Rates based on scores

When you apply for a loan from a bank or NBFC, the lending institution gets your credit report from one of the four agencies mentioned above.

The higher the credit score, the better the potential for lowering the cost of your borrowing – home, personal, vehicle or any other loans.

Typically, the best deals are offered to those with scores above 800 or 825 on a maximum of 900 points.

Over a 100-point range in credit score, the interest rates can vary from 60-85 basis points across banks. A person with credit score (from CIBIL) of between 825 and 839 will get a home loan at 7.9 per cent from Bank of India, for example. But with a score between 725 and 759, the rate goes up to 8.7 per cent.

SBI offers new car loans of three-five-year tenors at 9.2 per cent for those with credit scores of 800 and above. The same bank charges 10.05 per cent for the same vehicle loan for those with credit scores in the range of 650-699.

The difference in rates can add up to significant amounts. A ₹15-lakh car loan at 10 per cent, taken for a five-year period entails paying ₹19.12 lakh overall. But if the same loan is available at 8.5 per cent, the EMIs add up to ₹18.46 lakh.

For larger loan amounts such as those involving mortgages, even a 50-75 basis points difference in rates can give significant savings.

All the above examples pertain to those who are salaried or are professionals.

Now, for the self-employed and non-salaried persons, there are higher rates to pay. Even if the credit score is the same for two salaried and self-employed people, there is a rate differential to be applicable.

For example, LIC Housing Finance charges 8 per cent for a home loan of up to ₹5 crore for a salaried person. But the rate for a non-salaried/self-employed person with the same score (>=  800) is 8.25 per cent.

The certainty of a monthly plays a role in the lender’s decision-making process.

Another aspect to note is that women borrowers can get 5-10 basis points lower rates than their male counterparts for the same credit scores, from a few banks.

Report in order

Given how important the credit report is, you should ensure that the details captured are always accurate and reflect your credit situation as it is.

Before getting to how you can rectify errors in your credit report, it is important to understand how to access it in the first place and get a sense of the details it holds.

Typically, you get one free credit report every year from the bureau whose score your lending institution uses.

You need to log into the credit bureau’s website and register first. Once you do that you will be asked for your PAN, Aadhaar and mobile number among a few other details. After OTP-based verification of your authenticity, your are given access to your report.

The credit report has details of your mobile number, PAN, residential address and then the past and current list of all your borrowings and repayments, credit limits, bank account details and the like.

It also shows the enquiries for loans that you may have made from different lenders.

An error in any of the above details can affect your credit score. For example, it could be a loan EMI repaid but not reflected due to, say, payment gateway/bank server problems. Incorrect account information or wrong credit limit. Duplicate accounts or unauthorised/fraudulent transactions must also be carefully checked for as otherwise it could result in significant erosion in credit scores. Even enquiries – cold calls from lenders that you mechanically agreed to or cases where you went in search – could result in lower scores as it indicates a ‘credit hungry’ person.

To rectify these errors you must use the dispute form from the website or app of your credit bureau. Once you identify the error, you must use this form and write to the bureau to correct the mistake.

Supporting documents can be uploaded online. These include repayment history details of loans, closure notes from lenders, bank transaction records, credit card statements and so on.

You must also sound off your bank or NBFC of the error so that they are made aware and also help in giving any additional supporting details.

Typically, issues are resolved within a month. And you may even receive status updates periodically before that.

In case the issue is not resolved even after 30 days, you can escalate the issue to the RBI’s ombudsman.

To be proactive, you must keep checking your report twice a year, even if it involves paying a small fee.

Some private banks offer a free view of your credit score ay any time of the year.

Published on May 31, 2025

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