Do Indians understand credit scores? Report highlights costly knowledge gaps

India’s expanding digital economy may be making financial products more accessible, but a new report suggests that awareness around credit health continues to lag significantly. A study titled “The Hidden Cost of Not Knowing: State of Credit Score Awareness in India” by ZET TechnoLabs highlights a major disconnect between credit access and credit understanding, with many users entering the financial system without fully understanding how credit scores work.

The findings indicate that while millions of Indians actively use digital payments, credit cards and online financial services, a large section remains unaware of the role credit scores play in shaping access to loans and borrowing costs.

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Credit score

One of the report’s most striking findings is that around 45% of respondents said they had never checked their credit score or were unsure whether they had checked it before.

In a financial system where creditworthiness increasingly determines loan approvals, interest rates and access to products, the report suggests many Indians are making financial decisions without visibility into how lenders evaluate them.

The challenge becomes more significant as newer products such as Buy Now Pay Later (BNPL) schemes and digital lending platforms become mainstream.

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Formal credit systems

The report also points to a broader structural challenge: more than 400 million Indian adults have no credit history at all, leaving a significant population without a formal financial identity.

For first-time borrowers, especially young professionals and gig workers, the absence of a credit profile can itself become a barrier. The report highlighted examples where individuals with stable incomes and repayment ability faced rejection because they lacked prior credit history.

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No understanding

While 75% of respondents said they knew what a credit score is, deeper analysis revealed substantial misconceptions.

Nearly 58% believed that checking their own credit score could reduce it, despite such checks being classified as soft enquiries that do not affect credit health.

Additionally, 25% wrongly associated credit scores with salary or income levels, reflecting confusion around how scores are actually calculated.

The report noted that many users understand the importance of a credit score but lack clarity on factors such as repayment history, utilisation ratio, credit age and enquiry patterns.

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Rejections and hidden financial costs

At least 30% of respondents reported being rejected for loans or credit cards, often without fully understanding the reasons behind those decisions.

The consequences of weak credit awareness can also extend beyond rejection. The report presented examples showing how small differences in credit scores can significantly affect borrowing costs.

One case showed that a borrower with a weaker credit profile paid a 1.6% higher interest rate on a ₹35 lakh home loan, resulting in over ₹8.5 lakh in additional costs over 20 years.

The report also highlighted the impact of poor repayment habits, noting that even a single missed payment can trigger sharp score declines and create long-term financial consequences.

As India expands financial inclusion, the report argues that improving access alone may not be sufficient. It suggests education and awareness may be equally important in ensuring consumers understand the systems increasingly shaping their financial lives.

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