30 Nov 2015

Pratik Bhartia

Five factors that impact your credit score

Credit score plays one of the most important roles in the banks decision to approve or reject your credit card or loan application. Below are the top 5 factors that impact your credit score and how you can manage them to ensure you have a healthy credit history.

Repayment history of existing loans
How regularly you have been paying the due amounts and EMI on your existing loans and credit cards has the maximum bearing on your credit score. A clean payment track record is a sign that you are managing your debt well and will help move your score higher up. On the other hand, any default or miss of payment dues can severely damage your score.

Utilization of existing credit limits
Credit utilization is calculated as the ratio of the amount you owe on your credit cards against the total credit limit that has been sanctioned to you. A high credit utilization rate often indicates that the person is under financial stress and has to lean heavily on his credit lines to meet his requirements. Its is advisable to keep the utilization ratio under 40%. Which is to say on a credit limit of 1 lakh, try and keep the outstanding lower than 40,000.

Enquiries made for loans or credit cards
The no. of new products that you have applied for in the recent past also has a bearing on your credit score. Every time a bank makes a CIBIL enquiry, it is taken as a sign of the customer applying for a new product. Too many such enquries indicate that the customer is under financial stress. This brings down your credit score and hence the chance of getting a loan on further enquries.

Length of credit history
The time duration since you first started using credit also has a bearing on your credit score. The longer the duration with a clean track record the higher your score is likely to be.

Type of credit
The type of loans taken also impacts the score. It is best to have a healthy mix of unsecured loans like credit card and personal loan and secured loan like home loan, auto loan etc.

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