Factors impacting your credit score

23-Sep-2015 written by : FSI-Team

Factors impacting your credit score

Everybody knows the importance of having a good credit information history and good credit score to get better interest rates on loans and easy approvals. For example a CIBIL TransUnion score of 750 or above is considered as a healthy borrower. Though the exact formula for calculating credit score is very complicated and not usually disclosed by any credit bureau, there is a fair idea available on the different aspects of your credit history on the basis of which your credit score is calculated. So what are the factors that affect a person’s credit score?

  • 1. Payment history: The single most important factor that decides a borrower’s credit worthiness. All public records of payments made against loan dues and credit card bills are recorded in credit information history and play an important role in calculation of the credit score.
  • 2. Length of credit history: Second important factor is how long you have been a good credit worthy borrower. A longer credit history with no major hiccups is a sign of a financially disciplined person. And creditors are interested in such borrowers.
  • 3. Current accounts. Ongoing loans/ debts are a sign of person’s current financial status. There is only so much a person can borrow and repay regularly because income is limited. Too many current open dues indicate less capacity for re-payment and thus does not reflect very well in credit score. But still owing something is better than owing nothing. This is ironic, because owing nothing tells the creditors nothing about your payment discipline and financial capacity.
  • 4. Types of accounts. The credit score also takes into account whether you have a good mix of different debts like credit cards, loans, mortgages etc. or are dependent on just one type.
  • 5. New accounts. Opening many accounts in recent span can reflect badly on score. This displays credit hungry behaviour and shows lower credit worthiness.
  • 6. Inquiries. A large number of inquiries again displays that you have been trying to get loan/debt from different sources. This again means credit hungry behaviour and affects the credit score badly.

Some of the things that immediately lower your score are:

  • 1. Late payments of any bills. If you have been late on any credit card payment or have defaulted on any loan repayment it immediately lowers your credit score.
  • 2. Any accounts going to collections. Any account going to collections department is an immediately credit risk for creditors. This means you have defaulted and the creditor had to resort to collections team to get back its money.
  • 3. If you have any legal suits, foreclosures, bankruptcies, liens or judgements against you, this again immediately is a red flag for any prospective creditor.



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