Your credit score is a three-digit number that influences your life. Most importantly, various things affect this score. Some may surprise you and others are very generic. Well, it is therefore, important to know what all affects credit score and ways to improve it.
Subsequently, this blog intends to explain the factors that affect your credit score.
Affects Credit Score: Know The Factors
Your credit score is calculated based on factors like payment history, amount of debt, the mix of credit accounts, new credit inquiries, and the age of your credit accounts.
Furthermore, now that you know how your credit score is calculated, it is important to know how and what affects your credit score. To put in simple words, you must know what affects your credit score negatively and how to improve credit score.
Affects Credit Score Negatively
Let us focus on payment history first. Your payment history is the main factor affecting your credit score. It accounts for about 35% of your credit score for each of the scoring models. Most importantly, it is the record of whether you have paid your bills on time or not. Multiple late payments do affect your credit score in the worst ways possible. Credit card bills, student loans, car loans and even mortgage loans if not paid on time can hamper your score. However, phone bills, utility bill that sector do not affect your score because they are of a very small amount.
The second one is based on the amount that you have. This again accounts for 30% of your credit score. It is calculated by comparing how much debt creditors have given and your credit limit. Therefore, you should keep your credit utilization ratio to less amount. This is the major reason being people are not good at handling debt. Someone carrying less debt is less risky than someone who is using a lot of credit.
The third one would be the account mix you have. The credit mix accounts for 10% of your score. There are two types of credit account that you can go for. The first one is the credit card and the second one is the loans. Credit cards are the revolving debt and the other one is instalment debt. Your credit score is perfect when you have a mix of both of them.
Apart from this, credit inquiries also contribute to your credit score. Soft inquiries do not show up on your credit report in the most significant ways. It can lower your score before you apply for any loan. Various hard inquiries make up to 10% of your credit score.
How Can You Improve Credit Score Over A Short Period
Some of the methods can be the longer ones but trust me if you follow these methods your credit score will be remarkable.
- Set reminders for payments and be disciplined about your borrowing. You need to make sure that you pay all of your EMI payments on time.
- The second one would be to ensure that old credit cards must not be forgotten about. Indeed, there are always credit cards that you don’t remember about. Subsequently, you don’t feel that any credit exists. Stop this thought right there and crosscheck with the bank authorities.
- You can also customize your credit limit to a very small amount. This will undeniably, reduce the chances of you paying your instalments late and you will end up repaying the loan on time without any failure.
- Particularly, try to not take too much debt at a single period of time. If you are taking multiple small amounts of loans, it will subsequently, show that you are under a debt trap.
- Indeed, you can create a good credit history by choosing various other forms of credit. Most importantly, create a good CIBIL score for yourself. Ensure that you borrow from a very healthy mix of credit. Go for secured and unsecured loans.
Conclusion
To put in simple words, you need to follow these to improve your credit score over a specific period of time. It will take around six months to 1 year for your credit score to improve but when it does, everything is possible.
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