factors affecting CREDIT score

What Are The Factors That Determine Your CREDIT Score?

November 18, 2022 • 179 views

The CREDIT score aids lenders in making their decision regarding whether to provide you with a loan. Your credit history, history of loan repayment, debt-to-income ratio, type of existing loans (secured or unsecured), and prior credit card usage are just a few factors affecting your CREDIT score. Credit score is issued by credit bureaus and there are four regulated entities authorized to provide the same and they are CIBIL, EXPERIAN, CRIF & EQUIFAX.

It is crucial to comprehend the variables that affect your credit score. With this, you can take the necessary action to raise it if it is below expectations, given that your CREDIT/credit score is the primary deciding factor regarding whether your loan application will be approved.

Most of us believe that if we don't pay our credit card bills on time, it will significantly lower our credit score. However, it is not the only thing that determines your credit score, as there are a lot of things, we need to be aware of.

The factors affecting on CREDIT score are listed below:

History of Credit Repayment:

Your credit repayment history reveals your ability to make credit repayments. It is also the main factor considered when calculating your credit score. Your payback history demonstrates your ability to meticulously satisfy your financial responsibilities by making on-time credit and EMI payments. Conversely, your credit health is harmed, and your credit score is significantly reduced when you fall behind on credit card payments or do not repay loans within the allotted time.

Numerous Credit Cards & Loans:

Multiple loans, both unsecured and secured, could lower your credit score. Similarly, holding several active credit cards could lower your score. These show how much debt you already have, and it isn’t a good sign. Before processing your loan request, banks or other financial institutions typically look at your debt-to-income (DTI) ratio. If your DTI ratio indicates that you are already overstretched, they may not be prepared to extend you additional credit. They will assume that you may be unable to pay your monthly EMIs. However, having several credit cards does not necessarily lower your credit score; but cancelling old credit cards might negatively impact you. You lower your total amount of credit available when you close a card. This will hurt your credit utilization rate, one of the most significant elements used to determine your credit score, unless you cut back on your spending. Your credit score could be impacted if you have several loans, credit cards, both active and cancelled, and new accounts.

Late Payments

Late and missed payments may severely impact your credit history and credit score. Such actions show that you can either not settle your present debts or are not sincere about doing so. Your credit score will consequently decline. As a result, establishing a strong credit score is greatly influenced by your repayment history. Therefore, be sure to make timely payments on all your card bills and loan EMIs. Additionally, keep a close eye on your individual and joint accounts to ensure no payments are missed.

Making Multiple Credit Product Requests

The lender obtains a copy of your credit report each time you apply for a credit product. A hard inquiry is another name for this action. When you submit several applications, your account receives multiple hard inquiries. This will not only have an impact on your credit score but also reveal your credit hunger. If your initial credit application is denied, give yourself some time before applying for the next credit product. Applying immediately and multiple times portray your finance management in a bad way.

Using Credit Card Less Frequently

Too many of us are wary about using credit cards. We believe that using a credit card can result in careless spending and poor credit habits. Therefore, even if we have credit cards, we prefer not to use them. In addition, your credit file will become inactive due to this type of non-transaction on credit cards, which could also lower your credit score.

Ignoring Credit Report Monitoring

Your credit score could be impacted if you don't check your credit report. Your credit report may occasionally contain inaccurate information due to some inadvertent errors or delayed reporting given to CREDIT. Your credit score can suffer as a result. Therefore, it’s always advised to verify your credit report and history for any inaccuracies at least once every six months. You can accomplish this by ordering your credit reports online.

Mistakes Found in the CREDIT Report

The CREDIT report frequently contains errors. They can be anything from inaccurate personal information to inputs with the wrong balance. You must keep an eye out for any anomalies because these errors immediately impact your credit score. So, keep an eye on your credit history and act quickly to fix mistakes.

Pending Debts

Your credit report will be greatly impacted by unpaid debt. Make sure to pay off any outstanding debt as soon as possible. Unpaid debt history might negatively affect your score significantly. Make sure to pay back both large and small sums as soon as possible.

If you’re asking the most common question about how to increase and maintain it, here are some tips to improve CREDIT for you –

  • Pay your card bills and loan EMIs on schedule.
  • Avoid missing bill payment deadlines.
  • Keep your old or unused credit cards active.
  • Keep your credit utilization ratio favorable.
  • Limit the number of credit queries you make.
  • Avoid applying for many loans or credit cards quickly.
  • Maintain a balance between secured and unsecured loans.
  • Regularly review your credit report and highlight any errors.

You need to pay attention to these factors affecting your CREDIT score so that your profile appears creditworthy, and you get guaranteed offers when you ask for credit. While you must adhere to the tips to improve CREDIT listed above, Poonawalla Fincorp can help you get a loan to fulfil all your financial needs. Our competitive interest rates, minimal documentation requirements, flexible repayment tenures, and end-to-end digital services will never disappoint you!

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