What is a Credit Score?
A credit score is a three-digit figure with a possible range of 300 to 900. It serves as an overview of your credit history and a gauge of your financial stability.
Financial institutions lean towards those who have achieved a credit score above 750 because it indicates that you’re most likely to pay your bills on time, which is important enough to put lenders at ease and give them the confidence they need to offer you loan services. Even if you use the best credit card in India, your score is likely to be influenced by other factors.
Your chances of quickly obtaining what you need increases if you already have an established good financial standing, as indicated by high credit scores.
Thorough knowledge of the factors influencing your credit score will be beneficial when you need to take out loans or apply for other types of credit. There is a long list of things that affect your credit score, and we’ve put it all together for you this time.
Why is Credit Score Important?
Credit scores and credit reports tell us how likely you are to pay off a debt commitment. Since most loans have some repayment schedule, this measure gives lending institutions an idea of whether they should provide a person or business more responsibility.
A strong credit score indicates that you’ll be able to handle all your commitments on time. By getting all of your finances in good order with our product, you can expect to see improvements in your credit score too!
Which Factors Affect Your Credit Score?
Credit Scores can be affected by a multitude of factors. The following five are the main reasons why your credit score may be impacted.
1. History of Repayment
Your credit history reveals whether you have been consistently paying back any funds lent to you or if you have an account of paying back some loans late or not altogether. Your credit score indicates how always you have made on-time payments for any loans or credit card bills you may have. Consistently repaying your monetary loans or credit card bills will result in a higher credit score.
2. The Percent of Credit You Have Utilized
The credit utilization rate indicates which percentage of your available credit you are using. You can increase your score by using as little of your available credit as possible, but be aware that if you use too much or none at all, potential creditors might think that this means that you don’t have enough money to service debt and it could reflect poorly on your financial history during the loan application stage.
This shows you how much credit you are using out of the total amount of available credit on your account. This can affect your credit score. Your credit score will go down if you use more than 30% of the total sum of all your available credit.
3. Mix of Credit Types
If you want to boost your credit score, it is important to maintain a healthy mix of secured and unsecured loans that spans several types of accounts. One example would be to apply for a home loan in addition to applying for other unsecured loans such as personal loans.
4. Credit Age
This only lasts for a short time. It starts with the time you first borrow money that someone else then keeps track of as it moves from one person to another. The duration of your credit age is measured in years, though some companies may work based on months.
5. Lenders Making Hard Inquiries
A bank or lender will make an inquiry on your credit report if you decide to apply for a loan. This is called a hard inquiry and is not uncommon in the financial industry.
It’s important to note, however, that this could lower your score, but it typically will not have any effect unless there are many inquiries over time, so if you have a few hard inquiries now and then it shouldn’t affect your overall credit score dramatically.
There are certainly other factors that impact a credit score but their impact is mostly negative.
Requesting for a Higher Credit Limit – Your credit score may suffer if you ask your bank for too many loans. This is likely due to the fact that most banks will require a credit check before deciding if they should open another bank account for you or not. Asking for a higher credit limit can be one of the reasons.
If your current credit score happens to be very low, then the chances of getting the loan actually decrease – so asking for a new one might not necessarily help in the long run.
Opening of New Credit Lines – Applying for several credit cards when you already have numerous accounts shows that you like to take risks with your spending and isn’t afraid of maxing out a card.
Since your creditors will see this as poor financial management skills, this might negatively affect your credit score.
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