Credit scores are an important decision making factors for the banks that provide credit facility to you. A credit score over 750 is considered a good score by lenders.

The Following 6 Factors Affect Your Credit Score

Repayment History (Weight 35%)

Repayment history has 35% weight in your final credit score. Therefore, it is extremely important to make timely payments of your EMI and credit card bills.

Every late payment and default is reported by the banks to the credit bureaus. These factors are considered by the bureaus while calculating your credit. Hence, every time you are late on your payments, it will affect your credit score negatively. Moreover, once a late payment gets recorded, it takes a year or more of regular payments for it to stop affecting your credit score.

Specifically for credit cards, it is always a good idea to have your credit cards on auto-pay from your bank account so that you do not forget to make a payment. Alternatively, you can use mymoneykarma Financial Tools that will provide you with automated reminders on your upcoming bills. Also, ensure that your bank account has enough funds to clear your EMI.

Credit Utilization: (Weight 30%)

The second-most important factor in your credit score is credit utilization ratio with a weight of 30%. Credit utilization simply refers to the percentage of your available credit that you are using. For example, if you have a limit of Rs. 1 lakh on your credit card, and you use Rs. 80,000 every month, then your credit utilization is 80%; similarly, if you use Rs. 30,000 every month, then it is 30%.

A higher credit utilization percentage is interpreted as excessive spending habits, and it affects your credit score negatively. To have a good score, utilize a maximum of 40% to 50% of your credit limit and make full payments before due dates.

Loan Tenure: (Weight 15%)

Loan tenure is the next factor with 15% weight in your credit score. The longer you have repaid your loans on time, the better it is for your credit score. The same is applicable to your credit cards too. Therefore, if you have a credit card and secured loans being repaid on time, it will help you improve your credit score. Any loan defaults or settlements with lenders due to inability to repay reflects negatively on your credit report and affects your score adversely. It is important to only take debt that you can repay.

Search Frequency/Inquiries: (Weight 10%)

Inquiries have 10% weight on your credit score. When you apply to a bank for any type of credit, irrespective of the outcome of the application, the bank reports your application to the credit bureaus as an inquiry for new credit. If you apply to many banks, all those will be reported to the credit bureaus, and you will have many inquires on your credit report. If there are too many inquiries within a short period of time, it affects your score negatively.

This can be avoided by some simple steps such as inquiring with banks only when you need credit and applying only to a shortlisted set of banks for your credit requirement instead of all the banks. You can shortlist the best banks and credit products for yourself easily on mymoneykarma. It is also advisable to have a gap between your inquiries.

Loan Mix: (Weight 10%)

Loan mix has a 10% influence on your score. Having both secured loans (loans backed by assets, such as home loan, car loan) and unsecured loans (loans that are not secured by assets such as personal loans and credit cards) will help affect your credit score positively. A lot of unsecured loans only might affect your score negatively, so it is advisable to pay them off quickly.

In conclusion, financial prudence and using tools like mymoneykarma will help you manage your finances judiciously and keep a healthy credit score to help access credit when you need it.