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6 Factors Affecting Your Credit Score
6 Factors Affecting Your Credit Score

August 16, 2021

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Your credit score is an important part of your financial life. Banks and other financial institutions use it to decide whether or not to approve your request for a credit card or a loan. While it's important to have a good CIBIL Score, you should also know what things help you build a good credit score and what factors could hurt it.

There are several factors that can affect your credit score. In this article, we will focus on the top 6 factors that have the power to positively or negatively impact your credit score. So, here we go.  

1. Owning Debt

The debt you owe compared to the credit available on all your credit accounts greatly impacts your credit score. For a good credit score, it's recommended to keep the credit utilisation ratio less than 30%. As long as you keep this ratio under control and make timely repayments, your credit score should be alright.

2. Credit Age and History

Credit age is the average age of all your credit accounts. If you have a long good credit history, you are rewarded with a good credit score.

When you are young, just starting out with credit, you probably won't have a credit score because you may not have sufficient history with credit. To build a good credit score, you will have to continue using credit and loans wisely. Once your credit accounts get old and your credit history is created, you'll have a credit score.

‍If you have old credit cards, which you are no longer using, don't make the mistake of closing them down. It will affect your average credit age, which can negatively impact your credit score.

3. Types of Credit Accounts 

If you want to have a top-notch CIBIL score, ensure that you have a good mix of credit accounts. Lenders love borrowers who can handle different types of loan accounts responsibly. Ideally, your credit portfolio should have a balanced mix of secured (home loan, car loan, etc.) and unsecured loans (personal loan, credit card, personal line of credit, etc.).

4. Credit Inquiries

Every time you apply for a loan or a credit card, the lender will run a credit report on you to figure out your creditworthiness. This inquiry is called a hard inquiry and has the potential to ding your credit score by a few points temporarily. Another type of inquiry is a soft inquiry, which does not have any impact on your credit score. An example of a soft inquiry is you requesting a credit report to know your credit score.

5. Payment History 

Your repayment history is one of the most important factors that can have the biggest impact on your credit score.

A long history of timely payments gives a boost to your credit score. If you happen to miss any payments, it could be your worst mistake because the effects of missed payments can hurt your score like no other. But you can reverse the situation by making on-time payments and actively reducing the amount owed - your credit score will gradually improve over time.  

6. Credit Report Errors

Your credit report may have inaccurate negative information that can harm your credit score. Therefore, it is important to monitor your credit report on a regular basis. If you notice any errors or misreporting, you can raise a dispute with the credit bureau and also with the lender and get the error rectified.

Bottom line

A good credit score is beneficial for your present and future financial life. It makes it easier for you to meet your short-term and long-term financial goals. Therefore, you must make it your game plan to only engage in activities that will positively impact your credit score. Focus on improving the above factors, and you'll be on the road to great financial success.  


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Shiv Nanda
Financial Analyst

I am Shiv Nanda a financial analyst currently lives in Bangalore and works with MoneyTap, India's first app-based credit-line.

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