5 Top Factors That Can Impact Your Credit Score

One important metric that reflects the financial health of a borrower is the credit score. Maintaining a good credit score helps a borrower to get a quicker loan approval of the desired amount and at competitive rates.

Easy credit availability and smooth transactions have encouraged people to apply for credit cards. However, lenders consider an individual’s credit score before approving a credit card. So, here’s a look at what can impact your credit score.

What Factors Influence Your Credit Score? 

Poor Track Record of Loan Repayment

Your credit score is heavily influenced by how quickly you have successfully repaid your debts. Missed loan instalment or credit card payments negatively impact the credit score. Unpaid debt indicates poor financial management or unwillingness of the borrower. Moreover, large debt on your books with two or three separate loans from multiple institutions degrades the score.

Poor Credit Mix

An incorrect blend of secured and unsecured loans negatively shows on your credit score. While calculating, the credit bureaus consider the different types of credit accounts and how well they are serviced by clients. Increased dependence on unsecured loans like credit cards poorly reflects your ability to handle credit.

Credit Utilization Limit

Consistently demonstrating an inability to reorganize your spending patterns according to your means can be damaging to your credit score. Increased credit use beyond a certain threshold has a negative impact since it is viewed as reckless financial conduct. It reveals that you are credit-hungry, resulting in a drop in credit score.

The credit utilization amount is determined by dividing the payable amount by the credit cap. In general, the lower your credit utilization level, the better. And it shows the ability to pay off your outstanding debts efficiently and on time.

Paying Just the Minimum Due Amount

The minimum amount due is a small portion of an individual’s overall outstanding debt. If an individual continues to pay only the minimum amount rather than the principal amount, the accumulated credit card interest can trap the consumer in debt. It is best to pay your credit card bills in full and on time to stop incurring late fees. It also represents unsatisfactory repayment conduct. 

Excessive Credit Inquiries

When you apply for a new credit product, such as a free credit card or a loan, the lender conducts a hard check to decide the customer’s creditworthiness. Too many inquiries with various financial institutions paint you as a credit seeker. It creates the impression that you would have trouble repaying the debt in the future.

In May 2019, there were 48.9 million credit card users in India. People apply for free credit cards because they make financial payments more convenient. However, before providing the services, the lenders review the borrower’s credit score. As a result, maintaining a high credit score is required to obtain any type of credit product, such as a loan or a credit card.

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