A credit score is described as a number that the risk included in lending a loan to any person. Some important places like credit card companies, automobile dealers, and bankers check your credit score. It is to find out if you are suitable for giving a loan or not or at what interest rate. Some others like the insurers, your employer or landlord may also sometimes check your credit score. This is to find out how much responsibility you have for any insurance, lending a home or giving you a job.
In this article, we will try to make you understand the 5 major factors that mostly affects your credit score.
What Counts Towards your Credit
Your score shows that how much you are responsible and financially stable towards your credit mainframe. Generally, it ranges from 300 to 850, but it is good to be higher as much as it can. The credit agencies use your credit report to generate your credit score. Each agency will show a varied credit score but all will be based on the same credit report. Here are the elements which include in your credit.
It comprises 35% of your credit score. The companies have one doubt in mind always that will we get our money back? It is the most important factors and tells us that are you trustable to pay the money back. It considers the following factors-
- have you paid your pending bills on time? Late payers have a negative effect on their credit score.
- If you got late for any payment, how late it was? The credit score goes worst as much as you get late.
- Has your account ever mentioned as a collection? If yes, then you are at the red mark in the eyes of the lenders
It includes 30% in your credit score. So let us assume that you are an on-time payer, but what when you are near to the breaking point?
- How much of your available credit limit have you used? Using less is better but don’t try to keep it zero to increase the score. Use it but less, as the lenders are interested in checking that if you lend money, you pay it.
- How much do you totally owe, and how much do you have compared to your original account and the installment account.
Length of Credit History
It comprises 15% of your credit score. Your credit score also checks for the age of credit, i.e, for how many years you have accountability. What is the age of your oldest account and what is the average age of your accounts?
A long credit history is good if it does not have any mispayments, but a normal credit history is nice too.
It comprises 10% of the credit score. Your CIBIL Score also considers how many new accounts you have applied for in the recent time. Or when did you last opened your new account? When you apply for a new credit, the lender does a hard inquiry. This involves checking your credit information using various factors.
Types of Credit In use
Finally, it comprises the remaining 10%. It means how many credit account of different types do you have. since this comprises just a small part, you do not need to worry much about it.
What’s Not Related TO Your Credit Score
Some factors are not related to the calculation of your credit score which is listed here:
- marital status
- Race, color, religion
- receipt of public assistance
- Where you live
- family support obligations
- any information not found in credit score
The Bottom Line
It is true that your score is very much important for your lender. But do not just get obsess on getting a good score demanded by the lender. Just manage your credits nicely with responsibility and your score will boost up automatically.
Also, read: Understand Credit Score