A credit score helps lenders in making their decision linked to whether to offer you a loan. Your credit score, past credit history, history of credit repayment, the fixed obligation to income ratio, kind of prevailing loans, i.e., unsecured or secured, and prior habit of using credit cards is just a few of the parameters that impact your credit score. Your credit score is issued by the 4 regulated entities authorised to offer the same. The 4 credit bureaus are known as CIBIL, CRIF HighMark, Equifax and Experian.
It is necessary to comprehend the different variables that impact your score. With this, you can efficiently take the required action in case it falls below expectations, given that your score is a major determining parameter deciding whether your loan application may be approved. You must ensure to conduct regular CIBIL score check to understand if it is within the acceptable limit. In case your credit score is below the acceptable limit, then you must run a check to understand where you are going wrong that is resulting in your credit score. By identifying the parameter behind the fall, you can improve your credit score and build a good credit profile. Likewise, bureaus even determine the credit score of companies to better help the lenders determine their creditworthiness. So, even the company must ensure to check their company CIBIL score on a periodic basis to understand where they stand.
Most of you usually believe that if you fail to pay your credit card dues or loans on time by the due date, then this may considerably reduce your credit score. However, it is not the only parameter that decides your score, as there are various other crucial factors, you must be aware of. The parameters impacting your credit score include the following –
Credit repayment history
Your credit repayment behaviour shows your potential for making credit repayments. Also, it is the major parameter considered when computing your score. Your repayment history shows your potential to meticulously or carefully satisfy your financial responsibility just by making on-time credit as well as EMI repayments. On the contrary, your credit health is impacted, and your score may be considerably reduced when you miss out on your timely credit repayments within the allotted timeline.
Various loans and credit cards
Multiple loans, both secured and unsecured, can reduce your credit score. Likewise, holding various credit cards can reduce your credit score. These indicate how much debt you already hold, and it is not a great sign. Before processing your request for a loan, banks or other lenders typically look at your DTI or debt-to-income ratio. If your debt-to-income ratio shows that you are overstretched, then you must become prepared to extend your additional credit. You can assume that you might be unable to pay the monthly EMIs. However, holding various credit cards does not necessarily reduce your score. However, cancelling your old cards may negatively affect you.
You reduce your overall credit amount available when you close your card. This may hurt your CUR (credit utilization ratio), one of the crucial elements used for determining your score, unless you reduce your spending. Your score can be impacted if you have various credit cards and loans, both cancelled and active and new accounts.
Late or missed payments might aggressively affect your credit score and credit history. Such actions reveal that you can either not meet your existing debts or are not completely sincere about the same. Your score will consequently fall. As an outcome, establishing a good score is highly influenced by your past history. Thus, ensure to make timely repayments on all your loan EMIs and card bills. Moreover, keep a close eye on not just your individual account but also your joint account to make sure zero payments are missed.
Making requests multiple times for credit products
Every time you apply for credit, this activity is shown on your credit report. Such inquiries with the lenders directly are termed hard inquiries. Your credit score falls every time a hard enquiry is received by you. When you submit multiple such applications, your credit score falls considerably. Besides impacting your score in a negative way, it also reveals you as a credit-hungry individual, which discourages lenders from accepting your loan or credit card offer. If your initial credit request is turned down, ensure to give yourself some time and not instantly apply for another credit option. Applying instantly and at multiple times shows you as an individual who is financially dependent on credit with a high probability of defaulting on the loan.
Using your credit card less frequently.
There are many of you who are wary about using cards. You believe that using a credit card may lead to careless spending as well as poor credit habits. Thus, even if you have credit cards, many of you prefer not to use any of those cards. Additionally, your credit profile becomes inactive owing to non-transaction through credit cards, which may impact your credit score.
Avoiding credit report monitoring
Your score can be negatively impacted if you do not review your credit report. Your credit report might occasionally contain inaccurate details due to a few inadvertent mistakes or errors or delayed reporting submitted by the lender or creditor to the credit bureau. Your credit score may suffer as an outcome. Thus, it is always recommended to authenticate your report and history for any kind of inaccuracies at least twice a year. You can attain this by fetching your credit report through online financial channels.
What are the mistakes that are found in your credit report?
Credit reports constantly contain errors or mistakes. Such mistakes can be anything from inaccurate financial details to personal info or inputs with incorrect balances. You must constantly keep a watch on such anomalies as such errors instantly affect your credit score. If you keep a close watch on your credit report, then you can instantly fix any of the mistakes and improve your credit score.
Your report may be impacted if there is any unpaid debt. Ensure to make payment of all your outstanding debts as early as possible. Unpaid debt history may negatively impact your credit score. Ensure to pay back both your small and large sums as soon as possible.
If you are asking a common question regarding how to enhance and maintain your score, here are some of the important tips you must note to improve your credit score. These include –
∙ Pay your loan EMIs and card bills as scheduled in full.
∙ Avoid missing out or delaying your bill payments.
∙ Keep your unused or old credit cards active.
∙ Keep your CUR (credit utilization ratio) favourable.
∙ Restrict the number of credit enquiries you make.
∙ Do not apply for several credit cards or loans in a short time span.
∙ Maintain a good balance between your unsecured and secured loans.
∙ Review your credit report regularly and highlight it to the concerned lender, issuer, and bureau in the case of any mistake or error.