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Factors That Affect Credit Score and Ways to Maintain an Excellent Score

Rapid strides made by technology in the recent years have entirely revolutionised the financial services industry. Now everything is being done online, starting from applying for a loan till the amount being disbursed into the account of the borrower.

The integration of technology in the finance sector has brought about a lot of transparency about how the financial institutions work and what are the various parameters against which a loan application is appraised. One of the most significant technological revolution in the finance industry in the recent years has been credit score.

Credit score is the single most significant factor that decides the outcome of all loan applications. A credit score is a numeric representation of an individual’s creditworthiness out of 900. In India, credit score is calculated by bureaus such as CIBIL and Experian.

Lenders user credit score to evaluate each application and then decide the outcome of Applications for Low-Interest Rate Personal Loans, Home Loans, Business Loans and various other types of loans. Having a good credit score (750+) is necessary to get the lowest interest rates against loan applications.

Factors that affect credit score

  • Repayment history

This is one of the most critical factors in determining your credit score. If you have been repaying all your EMIs (Equated Monthly Instalments), Credit Card bills on or before the due date, it would have a positive impact on your credit score. If you miss even one payment or make a late payment against your loan, it will have a drastic effect on your credit score. But if you continue making payments on time in future, the negative effect of missed payments will subside gradually.

  • Credit utilisation ratio

Card utilisation ratio (CUR) also has a significant impact on the credit score. If your CUR is above 30%, it will have an adverse effect on your credit score. But if it is falling over the course of time, it will have a positive impact on your credit score.

  • Number of hard queries

Every time you make a loan application, the respective lender makes an inquiry into your credit score, which is called a hard query. If there are too many hard queries initiated in a short span of time into your account, your credit score will nosedive.

  • Number of running loans

Exposure to debt is also a significant factor in determining your credit score. If you are running multiple loans with the high outstanding amount, it will impact your credit score negatively. Whereas, if you have been paying all loans on time and closing them gradually, your credit score would be affected positively.

  • Loan portfolio

Types of loans that you have taken also impact your credit score. If you have many unsecured loans, they will have a negative impact on your credit score as compared to secured loans.

These are some common factors that impact your credit score; there are numerous other factors that make a significant impact on your credit score in the long run.

How to maintain a good credit score?

Maintaining a good credit score is a gradual process and requires good financial discipline on your part. There are various ways to maintain an excellent credit score, such as: –

  • Repay your bills on time

You must make it a habit of repaying all your bills on time. If possible, you can also put all your bills and EMIs on auto debit from your bank account or Credit Card. This way you will never miss the due date and will only have to manage one account.

  • Reduce your CUR

You must ensure that the CUR must be below 30% of the total sanctioned limit. In order to do that you must repay as much amount as possible every month and avoid depending on making minimum payments only.

  • Repay your Credit Cards first

Credit Cards carry significantly high rates of interest and should, therefore, be repaid at earliest. Having such high-interest debt will really impact your credit score negatively. So before settling your Personal Loans or Home Loans, repay your Credit Card dues at earliest.

  • Pay EMIs on time

You need to ensure that you repay all your big EMIs on time including Personal Loan, car loan or Home Loan. If you are repaying all your EMIs on time, then even if your debt exposure is high, lenders will consider your application positively.

  • Check your credit report

Sometimes there are some clerical errors in the data based on which the credit score is calculated, or some debt that does not belong to you is reflected in your credit report. To rectify this error, you must keep a close eye on your credit report, and if you find any discrepancy, it must be raised in front of the relevant authorities.

Maintaining a good credit score is very important in the present times, as it ensures convenient access to credit in case of any emergency faced by you and that too at lowest interest rates.

Also Read: How Do I Choose the Right Tenure for a Home Loan?

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers.

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