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  • Factors Deciding Your Credit Score

    We live in a time where reports and documents are more valuable than relationships and bonds. In this money minded world, word of mouth holds no importance and individuals without proof to back themselves might find it tough to survive. A credit score is one such document which is essential to get loans or credit from financial institutions, without which one would have to suffer undue hardships.

    Most financial organisations judge a borrower solely on his/her credit score, making a decision to offer or reject credit based on this score. Good scores generally ensure that an application is accepted, while bad scores could put an applicant in a dicey situation. The world revolving around credit scores is filled with terms and conditions, making it a confusing place to be in. While a majority of these terms might be factual, there are certain terms which have no bearing on the credit score.

    Factors which affect your credit score

    Some of the few points which actually impact your credit score are mentioned below.

    • Repayment History – Timely payments of bills and interest go a long way in improving your credit score, reflecting your ability to repay amounts. Late payments are bound to hurt the score, highlighting your inability to fulfil your financial obligations.
    • Credit History – The credit history highlights your overall credit scene, showcasing the type of credit you have availed and how you treated them. Timely treatment and clearance of all past dues will build your credit history, in turn building a better credit score. The time used to clear a loan offers great insight to financial institutions about the character of a borrower.
    • Credit Amount – Given the ease of obtaining credit today, there is a chance that we might overstep our comfort zone and take credit which is beyond our means of repayment. Such excessive amounts are bound to red-flag credit providers and show one as being credit hungry, lowering your credit score in the process.
    • Type of debt – Debt is classified under two headings, good and bad, depending on whether it is secured or unsecured. A healthy mix of both these is bound to improve your credit score, whereas over-reliance on unsecured credit could bring down the score drastically.
    • Credit Applications – The number of applications an individual makes to avail credit are reflected on the credit score. Additional requests reflect poorly on the Credit score as they make you seem credit greedy.

    Myths related to your credit score

    There are certain additional details which banks or financial institutions require during credit applications but which have no role in determining the credit score. Here are some points which, while important have no bearing on your credit score.

    • Age – Your age might seem like an important criteria when obtaining a loan/credit but it has no bearing on your credit score. While it is mentioned in the report it is just an identifier and does not affect the score in any way.
    • Bank account details – Your bank accounts and investment portfolio have no impact on credit score even though they offer great financial insight.
    • Address – Your home/business address goes a long way in deciding your social status but plays no role in your credit score. It is merely used for informational purposes.
    • Interest rates – We often jostle to get loans at lower interest rates, thinking that lower interest rates might translate into better scores. This, however is not true, as the interest rate has no impact on your credit score.

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