Your credit score plays a crucial role in your financial life, impacting everything from loan approvals to interest rates. Understanding the factors that influence your credit score can help you maintain a healthy financial profile and unlock better borrowing opportunities.
Payment History
One of the most significant determinants of your credit score is your payment history. Consistently paying your bills on time shows lenders that you are a responsible borrower. Late payments, defaults, or bankruptcies can severely damage your credit rating and stay on your report for years. Even a single missed payment can cause a noticeable dip in your score, making it harder to secure credit at favorable terms.
Credit Utilization Ratio
Your credit utilization ratio, the percentage of your available credit that you’re currently using, also heavily influences your score. Experts recommend keeping this ratio below 30 per cent. For example, if your credit card limit is Rs 1,00,000, try not to carry a balance exceeding Rs 30,000. High utilisation signals potential financial stress and can reduce your creditworthiness.
Also Read: Stock Market Ends Higher; Sensex Gains 220 Points, Nifty Tops 24,600 Mark
Length Of Credit History
The duration of your credit accounts impacts your score as well. A longer credit history provides more data on your borrowing habits, generally improving your score. Closing old accounts prematurely can shorten your credit history, potentially lowering your score.
Types Of Credit Used
Credit bureaus prefer to see a healthy mix of credit types, including credit cards, personal loans, and home loans. A varied credit portfolio demonstrates your ability to manage different kinds of debt responsibly.
Recent Credit Inquiries
Every time you apply for credit, a hard inquiry is made on your credit report. Multiple recent inquiries can indicate financial distress and may lower your score temporarily. It’s wise to limit the number of credit applications within a short span.
