Don’t know much about Credit Scores and how they are calculated? Then, this post is for you!
What Is A Credit Score?
- It is a three-digit score populated based on your past credit-related financial transactions.
- It is used to decide whether you have the ability to repay loans on time.
- Your Credit Score changes every time you make a financial transaction such as repaying your loan or getting a Credit Card.
- Credit Scores range between 300 and 900.
- If you don’t have a credit history or your lender didn’t report your loan account, your score could be zero or NH.
Who Determines Credit Scores?
- Credit bureaus, such as CIBIL and Experian, come out with Credit Scores and credit reports.
- Credit bureau is a company that collects information from various sources, such as financial institutions, for providing credit information on individuals.
- Bureaus provide a Credit Score based on the information collected.
- Many lenders use Credit Score to assess the credit eligibility of individuals like you.
Additional Reading: How To Improve Your Credit Score Quickly
Your Credit Score
There are some factors that make up your Credit Score. These are the same ones that affect your Credit Score. They are:
- Payment History
- What is it? – This measures your on-time loan/Credit Card payments
- Weightage – High (35%)
How to score high – Make sure that you never miss out on a payment due date.
- Account Information
- What is it? – This is the outstanding balance on your loan/Credit Card
- Weightage – High (30%)
How to score high – For Credit Cards, your card utilisation ratio is calculated. This is the ratio of your purchases to your credit limit. The lower the ratio, the better your score. A new card or an enhanced credit limit can help achieve low card utilisation ratio.
- Age Of Credit Portfolio
- What is it? – The age of your Credit history. The higher, the better
- Weightage – Medium (15%)
How to score high – Holding on to your old Credit Cards can help. Use them for bill payments.
Additional Reading: Credit Score – Frequently Asked Questions
- Credit Enquiries
- What is it? – Count of hard enquiries made by banks to check your Credit Score
- Weightage – Low (10%)
How to score high – Check your eligibility before applying. This will lower your chances of rejection. You can check your loan eligibility for free on BankBazaar.com.
- Total Accounts
- What is it? – Number of loans and Credit Cards that you have. The higher, the better
- Weightage – Low (10%)
How to score high – Have a good mix of loans and Credit Cards.
The next time you find out that your loan application got rejected, just check your Credit Score. If it is low, don’t you worry coz you can always improve it. Want to check it right away? Go on, click the link below.