24-Jan-2018 written by : FSI-Team
A credit report is impacted by a variety of factors and there is no simple answer to how exactly they bring a difference. As for your age, it may or may not bring a big difference in your report and the score.
Here is the thing- you age doesn't directly contribute to your credit or CIBIL score. This is because it's based on your repayment history, credit variety, history of loan defaults, etc.
Almost every credit rating agency doesn't take the applicant's age into account when calculating their score at all. However, your age can actually make a difference in your loan application.
It's much easier for someone older to achieve a high credit score than someone who is in their 20s. This is because their credit history is longer which alone plays a major role in the credit score calculation.
One of the biggest factors that affect your credit report is the average length of your credit history. Let's take an example to understand this.
Say, you got a credit card at age 18 as you joined college and 10 years later, when you are 28, the account is still open and you have managed it well by paying the bills on time, using the credit in moderation, etc. Chances are that your credit score is in a good shape. On the other hand, a friend of yours who got their credit card at the age 22, i.e. around the time they graduated from college; their credit history is only 6 years old compared to yours which is 10 years. Theirs is shorter which is why their credit score may not be as high as yours.
One of the most important things to understand when you want to improve your score for easier car loan eligibility, home loan eligibility, etc. is that your score is based on the average credit history. This means that the more are the accounts, the lower will be the score. In the same way, the fewer are the accounts, the higher the score.
Remember- the oldest accounts you have are the most important ones for the credit score. Thus, you should never close them unless it's absolutely necessary. Instead, try to close the new accounts of loans, credit cards, etc.
Once you have got rid of the unnecessary accounts, it's time to manage the ones remaining responsibly.
The following are some of the things you need to do to improve your credit score:
An old credit card account won't do you any good if you are often late with the payments.
When it comes to credit or CIBIL score calculation, then every single bill and every single EMI matters. So, mark the dates on your calendar, install a reminder app, or do whatever you can, but make sure that you pay the bills and EMIs on time every time.
If you think that your score isn't affected even if you frequently make minimum payments for your credit card bills, then you are wrong.
Minimum payments allow you to prevent penalties and late fee, etc. However, they lead to debt accumulation. This is because the balance is transferred to the next month and added to the next bill. It also collects interest, i.e. debt, which is bad for your credit score.
So, it's important that you avoid minimum payments as much as possible. Instead, try to use cash as it doesn't' affect your score.
While you definitely want to keep your oldest accounts on record for building a high score, you also want to make your credit portfolio as diverse as possible.
A credit report based on only one type of credit viz. credit cards, personal loans, mortgage, etc. will usually have a lower score when compared to another report which has the same length of credit history but varying credit types.
So, these were the things you should keep in mind when you are evaluating your car loan eligibility, credit card eligibility etc. Changing your habits in accordance with these can greatly help you in the long term.