- Payment History: Your payment history is among the most important factor that affects your credit score. Late payments, missed payments, and defaults on credit cards or loans can take a significant toll on your credit score.
- Credit Utilization Ratio: The amount of credit you use compared to your credit limit is known as your credit utilization ratio. High credit utilization can indicate that you're relying too much on credit, and it can take a toll on adversely affect your credit score. Thus, you should aim to keep your credit utilization below 30% to maintain a good credit score.
- Length of Credit History: The length of time you've been using credit is another factor that can affect your credit score. A longer credit history is generally viewed positively by lending institutions, as it demonstrates financial responsibility and stability.
- Types of Credit: Having a mix of different types of credit, such as credit cards, Personal Loans, and mortgages, can help improve your credit score. A healthy credit mix should contain an optimum combination of secured and unsecured loans, long term and short term loans and so on.
- New Credit: Opening several new credit accounts in a short period can indicate that you're taking on too much debt and can negatively affect your credit score.
It's important to note that each credit bureau may weigh these factors differently and may have different scoring models. Still, in general, these are the primary factors that affect your credit score.
It should come as no surprise that non-payment of your bills, especially on existing credit cards, can quickly reduce your score. FICO and other credit score models consider this a very important aspect. Your payment history is 35% of your total credit limit.
2. Debt Consumption
This word sounds confusing, but it's just a number that shows how much money you're spending right now. For example, if you have an amount of Rs.10000 on your credit card and you charge Rs.4000 on it, your use is 40 percent on that card. Your credit scores look at all of your credit cards, add up what you owe, and compare your available credit limits. This rate accounts for 30 percent of your score, so it's very important!
3. Credit Age and History
If you are too young and just start with credit, your score will show you that. The credit age is 15 percent of your credit, and scoring agencies will look at both the age of your old account and the average age for all of your accounts.
For new credit holders, there is not much you can do but continue to use your credit wisely and wait for your accounts to expire. Closing old accounts, even if you do not use them, will shorten the average age of the account. Opening a new account will do this again. Keep your accounts as long as it makes sense for your old account to continue to increase your credit score.
4. Consolidation of Debt and Account Types
There’s something to be said about diversity, especially when it comes to debt. Lenders like to see that you can manage accounts, and you will be rewarded for managing different types of credit by committing to an improved credit rating. This section makes up only 10 percent of your school, so how can you make it work for you?
Now these two types of credit accounts: Flexible (like credit cards and credit lines) and Installment loans (such as collateral for your property or car). Having both of them is the best way to keep your score high.
5. Credit Inquiry
As you might expect, the lender will issue you with a credit report whenever you apply for a credit card or loan, this investigation may deduct your credit points by a few points for a limited period of time. This type of inquiry is called ‘Difficult investigation’ because it affects your credit score.
Another type of credit inquiry, ‘Soft inquiry’, is what companies or homeowners can do as a way to do business with you. You may not even know that one is being run, and since it does not affect your points, that is not a big deal. Serious debt questions make up 10 percent of your total debt, so make them smaller.
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