Your credit score is a major metric that sums up and forms your credit health. It is one of the major parameters that assist lenders as well as issuers in understanding your credibility while approving your application for credit products like loans or credit cards. The higher your credit score, the lower your default risk on credit repayment and vice versa. Listed here are some of the important parameters that may affect your credit score. Note that you are checking your credit report for free. To get a free CIBIL report, you may either access the CIBIL website or online lending marketplaces. By conducting a check for a free CIBIL score, an SBI loan or any other loan may be easily approved if your score is good.
Credit repayment record
This is a crucial parameter that affects your credit profile. It accounts for nearly 35 per cent of your credit score and is used by banks to assess your credibility. If you make any default in paying the loan EMIs and credit card bills, it may negatively affect your credit score. And if you have repaid all your outstanding bills by the due date, you will get rewarded with a better score.
Credit utilization ratio
The credit utilization ratio is the percentage of your outstanding card balance compared to your credit card limit. This parameter accounts for 30 per cent of your score. Basically, the lower your CUR (credit utilization ratio), the better it is. As this demonstrates, you can responsibly repay your debts on time. Basically, you must use 30 per cent of your credit card limit to maintain a strong credit score.
Length of credit history
How long you must hold the credit accounts makes nearly 15 per cent of your score. It involves your oldest credit account age, the newest credit account age, and the average age of all accounts. Usually, the longer your credit record, the higher your score will be.
Mix of credit
The next category that impacts your score is the distinct kinds of credits you have, including loans and credit cards. While computing your score, credit bureaus factor in the kinds of accounts and how many of every account you have as an indication of how well you manage the wide range of credits. A mix of credit accounts for 10 per cent of your score.
New credit accounts
The number of credits you have currently opened and even the number of inquiries directly with the lender makes you apply for the credit accounts for about 10 per cent of your score. Opening a lot of accounts or forming inquiries shows higher risk, which can impact your score.
Also Check: Free CIBIL Score SBI
Repaying just the MAD (minimum amount due)
The minimum amount due (MAD) is a meagre portion of the principal constituent that is outstanding each month. You may fall into the debt trap if you hold the habit of paying just the minimum due amount each month. This habit results in a compounding of interest constituent on your outstanding balance. Thus, it is recommended to pay your credit card dues in totality and on time if you want to avoid paying late payment charges. This even shows your poor repayment behaviour.
Closing old credit accounts
Credit cards are a prudent way that assists you in forming a solid credit record only if you responsibly use them. Your credit card accounts show your credit usage and your credit history length. Thus, when you close your previous old account, you may end up losing your long credit history linked with it. Thus, if you have used your credit card for a considerable time period, it is recommended to keep this open, if possible, and consider closing a credit card that is relatively new.
Not checking your credit score and credit report for errors
It is essential to keep a continuous check on your credit report every 6 months to correct errors. The delayed or incorrect reporting by the bank might show faulty info on your report and lower your score. A high loan balance shows that you are already in a lot of debt, and extending higher credit might not be a feasible option as the probability or possibility of repayment is low.
Multiple applications for loan
Whenever you place an application for a credit option like a credit card or loan, the lender initially reviews your eligibility to understand your creditworthiness and how responsible you are in making your repayments. Submitting a lot of loan enquiries may negatively affect your score as it might show you as an individual who is hungry for credit. Multiple loan applications might show your lender that your loan burden is most likely to enhance in the future, and it might be difficult for you to pay off your debts.
So, these are the main factors that negatively impact your score. Such parameters keep on frequently changing; thus, ensure to keep a thorough tab on the same by checking your credit report as well as your score constantly.
How can you ameliorate your score?
In case you have a low score of below 750, you can adopt the listed tips to ameliorate it.
∙ Make sure your repayments of loans are made on time, and you are consistent with the same.
∙ Check out your score periodically. You may do so by visiting online lending marketplaces or credit bureaus.
∙ Apply the autopay mode for all your loan and credit card due payments.
∙ Try and split your EMI as well as your repayment amount in small parts. This will allow you to distribute your payments across many months.
∙ Avoid multiple applications for loans and credit cards.
∙ Ensure maintain a low CUR (credit utilization ratio) of up to 30 per cent all the time.
∙ Retain your previous credit accounts. It will assist in increasing your credit record.
∙ Take the assistance of unsecured loan options to meet your monetary mismatches only when you cannot do without this.
A strong credit scoreWhat are conventional loans? can go a good long way to ensure the easy availability of loans and credit cards, which can support you in times of financial exigencies. Consider all parameters that impact your score. Doing so will assist you in getting a full picture of your credit pattern and behaviour.