A credit score is one of the important factors that determine your creditworthiness and help the lender know if you can repay your loan or not. So, it is very important to maintain a good credit score. These are some of the factors which affect your credit score.
Your credit score will be badly affected, if you do not pay your credit card bills on time. Even if you miss a single payment, your bank will notify this to CIBIL. Not just the credit card dues, even if you miss paying EMI on your loans such as car loan, personal loan and so on, it will be reflected in your credit score. It is advisable to pay all your dues on time. You may have a misconception that late payment of household and utility bills will affect credit score, but this is not true.
Increasing credit limit on your credit card very often, will affect your credit score. If you increase your credit limit frequently, lenders will think you depend on credit to manage expenses.
Even though increasing credit limit lets you spend more now and pay later, it is advisable not to increase the credit limit frequently.
As you know, the credit limit is the maximum amount you can spend using your credit card. You should not use up the entire credit limit as this will increase your credit utilization ratio.
Having a high credit utilization ratio, will affect your credit score. Banks will assume that you are credit hungry, if you have a high credit utilization ratio. So, it is advisable to maintain the credit utilization ratio, less than 40%.
Errors in your credit report will affect your credit score. Your credit report will have errors such as a default in the payment, wrong spelling of your name and so on. You should check your credit report frequently to ensure there are no such errors which affect your credit score.
You might be surprised to know that not having a credit history can impact your credit score. As credit score is determined on the basis of your credit behavior, loan repayment history and credit utilization limit, it is important to have a credit history.
A credit score is a number that evaluates your creditworthiness and it is based on your credit history. Lenders get an idea on your repayment ability, through the credit score. CIBIL gives you a credit score ranging from 300 to 900 and you must have a credit score of at least 750, to get faster loan approvals.