Factors that impact your credit score

If you are planning to get a credit score from a credit bureau, then you need to know the factors that credit bureau takes into account to determine your credit score. The score assigned by a credit bureau is an indicator of the creditworthiness of the individual. Therefore, in order to get a high credit score, it is important to know beforehand the factors that positively or negatively impact your credit score.

The first and the most influential factor that determines your credit score is your payment history. If you have paid all your loan instalments and bills in full and on time, then your credit score will be high, which increases your chances of getting your loan approved significantly. On the other hand, if you have defaulted in your loan repayments or have not paid your bills or have often paid the bills late, your credit score is bound to be low and so will be your eligibility for a loan from a bank or a financial institution.

The second most important factor is the outstanding debt amount as compared to the total credit limit available to the individual. The higher the percentage of debt amount outstanding against the credit limit, the lower the credit score and, therefore, lower the eligibility for borrowing.

The third factor is your credit history. The credit bureau looks at how many times you have borrowed in the past, the duration of these borrowings and your record of repayments. If a person is habituated to borrowing quite often and also delays in repayment of the loan amounts, then this will be reflected in a low credit score.

The credit bureau also looks at the types of credit you have availed in the past. If you have taken a housing loan, car loan, personal loan, gold loan, etc. and have repaid all these loans in full and on time, then your credit history is fairly diversified and your credit score is likely to be high. However, if you have been applying for multiple loans within a short period of timerecently, you may be considered a credit risk and the credit bureau as well as the lenders may take a serious view of your borrowing spree. On the other hand, if you have been employed recently and have not taken any loan till date, then it would be necessary to start with a credit card and personal loan or home loan and repay these debts on time to build up a good credit score.