5 factors which play a key role in determining your credit score. Check here | Mint
Source: Live Mint
If you are planning to raise a personal loan or applying for a credit card, remember that the lender would assess your credit score to determine your creditworthiness.
A credit score, as you would know, is a three digit number that shows the creditworthiness of the borrower based on your credit history. It is recommended to check your credit score on a regular basis.
Here we list out the 5 key factors that play a role in determining your credit score.
Credit score: 5 key factors are as follows
I. Whether you pay your credit card bill on time: One of the key factors which plays a role in determining your credit score is whether you pay your credit card bill on time.
For instance, if you delayed your credit card bill payment or defaulted on it, your credit score stands to suffer.
II. Portion of bill cleared: Whether you pay full credit card bill or only the minimum due: Another factor that determines your credit score is whether you make the full payment of your card, or you pay the minimum due. For instance, if you make the full payment, it reflects positively and therefore, your score stands to improve.
On the other hand, when you only pay the minimum due, it will reflect negatively on your credit report.
III. Credit utilisation ratio: This is the ratio of the credit you have utilised out of the total credit limit available. The larger this ratio, the poorer the score gets. For instance, if you have utilised 80 percent of your total credit limit, it shows you have a poor credit record.
On the other hand, if you have utilised only 20 percent, it means your credit record is good. The ideal ratio is believed to be under 30 percent.
IV. Whether there is a credit history: Another factor that plays a role in your credit score is whether you have a credit history or not. There are some young salaried persons who do not have a credit history. This means the credit score – without any fault of the applicant(s) – is not high.
V. Whether there is a good credit mix: Finally, it is important to have a healthy credit mix which entails a blend of credit options such as credit card, loan and secured loan.
When there is a good credit mix, the credit score tends to improve. Conversely, when the credit mix is not healthy, the credit score takes a beating.
