Need a Personal Loan? Finally decided to get a Credit Card? Your Credit Score can swoop in and save the day! Therefore, it’s best to take care of it. Here are a few factors that can damage your score. Let’s take a look.
Your Credit Score is a three-digit number in the range of 300-900. It is a summary of your credit history and acts as a measure of your creditworthiness.
To put it simply, a lender or creditor such as a bank takes a look at your Credit Score to decide whether or not you should receive the capital. A high score implies that you are highly eligible for Personal Loans or Credit Cards.
How is your score calculated? Great question! Your score is derived with the help of an algorithm that takes stock of your credit report, which is a blueprint of your financial behaviour.
Additional Reading: Why You Should Read Your Credit Report?
Not sure what your Credit Score is? Look no further! Get your free Experian Credit Score in a matter of minutes!
Let’s dig a little deep into factors that shape your credit history:
Your payment history: This has a huge impact on your score. Paying bills on time can fetch a high score.
Credit utilisation ratio: This is the ratio between your Credit Card limit and the amount you are actually using. A 30% utilisation rate indicates that you can manage your finances well.
History of credit activity: Your past credit behaviour is used to project your future activities. It’s also wise to have a lengthy credit history.
Hard enquiries: If a lender or creditor digs up your Credit Score as a part of decision-making, it passes as a hard enquiry. Checking your score by yourself qualifies as a soft enquiry. While frequent hard inquiries can take a toll on your score, a soft enquiry is harmless.
Additional Reading: What Are The Components Of Your Credit Score?
Now that we have a fair idea of what comprises your Credit Score, check out these factors that can adversely impact it:
Missed payments: Missing the due date for the payment of pending Credit Card bills is a sure recipe for disaster. Information regarding late and missed payments is retained in your credit report for up to seven years!
Inability to repay debt: Failure to repay loans makes for one of the most common reasons for a bad Credit Score. It is looked upon as financial instability, which can bode ill for your future credit activity.
Foreclosure: In the event that you can’t pay back your mortgage, the lender of the loan will take direct possession of your home. Such an incident of repossession will remain in your credit report for years.
Closing accounts: Let’s imagine that you have closed your oldest Credit Card account. In that case, the credit available to you reduces, thereby negatively impacting your score.
Additional Reading: How Does Bankruptcy Affect Your Credit Score?
Opening multiple credit accounts within a short span of time: This generates a number of hard inquiries, which can be quite concerning in terms of your Credit Score.
Lack of diversity in credit mix: Just using Credit Cards without balancing it with loans can affect your Credit Score
Additional Reading: 6 Biggest Credit Score Mistakes Millennials Make In Their Early 20s
To up your Credit Score game, try regularly monitoring your score and closely reviewing your credit history. Those without a substantially lengthy credit history can still pull up a great score just by being up-to-date with bill payments.
Additional Reading: How to Build a Credit History If You Don’t Have Any Existing Loans
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