Introduction

Think of your CIBIL score like your financial reputation. Just as your reputation is built by your actions, your credit score is built by your financial habits.

Understanding the factors that affect credit score is crucial in today's India, where everything from buying a smartphone on EMI to securing a home loan depends on credit. It's no longer a choice, it's a necessity.

Whether you're just starting out or looking to improve, let's explore the 10 key factors that shape your score and how you can master each one!

Key takeaways-

• Payment history is the most critical factor; automate payments and address missed payments immediately to avoid significant score damage.
• Maintain a credit utilisation ratio below 30% by managing spending and requesting higher limits to signal financial stability.
• Avoid frequent hard inquiries by spacing credit applications and regularly checking your report for errors to prevent unnecessary rejections.
• A diverse credit mix and long credit history demonstrate reliability; keep old accounts open and only take necessary credit.
• Settled accounts or co-signing defaults severely impact scores; prioritise full repayments and monitor guaranteed loans closely.

Top 10 Factors That Affect Your Credit Score

1. Your Payment History (35% Impact)

This is a record of whether you have paid your past credit accounts, like credit card bills, personal loan EMIs, or car loan EMIs on time.

This is the most important factor influencing CIBIL score. Every late payment or default is a big red mark on your credit report. It tells lenders, "This person might not repay on time," which is one of the most common reasons for a low credit score.

Solution:

• Set up automatic EMI payments through your bank to ensure you never miss a due date.
• Create payment reminders on your phone for all credit obligations.
• Pay at least the minimum amount due on credit cards before the due date.
• If you've missed payments, contact your lender immediately to discuss payment arrangements.
• Consider paying twice a month to stay ahead of due dates.

Did you know? At Credit Help India, we have reviewed over 1,00,000+ credit reports. In our experience, nearly 70% of cases with a low score are primarily due to missed payments on credit cards or small-ticket loans. The good news? It's also the easiest to fix with disciplined habits. If your report has errors showing missed payments you actually made, our experts can help you dispute and correct them.

2. Credit Utilisation Ratio (30% Impact)

This is the percentage of your available credit limit you're using each month. For example, if your credit card limit is ₹1,00,000 and you've spent ₹80,000, your utilisation is a high 80%.

High utilisation signals credit hunger and financial stress. It's a major reason for a low credit score, even if you pay your bill in full every month. The golden rule is to keep it below 30%.

Solution:

• Consciously keep your spending well below your total limit.
• A higher limit automatically lowers your utilisation ratio, provided your spending stays the same.
• Distribute your expenses across cards instead of maxing out one.

3. Length of Credit History (15% Impact)

The longer your credit history, the better your score. This factor influencing CIBIL score considers the age of your oldest account, newest account, and the average age of all accounts. Closing old credit cards can actually hurt your score by reducing your credit history length.

Lenders prefer borrowers with established credit relationships, as it demonstrates long-term financial responsibility.

Solution:

• Keep your oldest credit cards active, even if you rarely use them.
• Make small purchases on old cards occasionally to keep them active.
• Avoid closing old accounts unless absolutely necessary.
• If you're new to credit, start building history as early as possible with a secured credit card.
• Be patient – credit history length improves naturally over time.

[Learn more about how to build a credit score without a credit card for those just starting their credit journey.]

4. Credit Mix (10% Impact)

Having a diverse mix of credit types – credit cards, personal loans, home loans, and auto loans shows lenders you can handle different types of credit responsibly.

A healthy credit mix demonstrates financial maturity and versatility in managing various credit products.

However, don't take unnecessary loans just to improve your mix. Only borrow what you genuinely need.

Solution:

• Maintain a balanced mix of secured loans (home, auto) and unsecured credit (credit cards, personal loans).
• Avoid taking multiple loans of the same type simultaneously.
• Consider a secured credit card if you only have unsecured credit.
• Don't close different types of credit accounts impulsively.
• Focus on responsible management rather than artificially creating variety.

Want to build history but don't want a credit card? Explore options on how to build a credit score without a credit card through small consumer loans or secured products.

5. New Credit Enquiries (10% Impact)

Every time you apply for credit(loan or card), lenders perform a "hard enquiry" on your credit report. Multiple enquiries in a short period can lower your score by 5-10 points each and suggest you're credit-hungry or facing financial difficulties.

However, enquiries for the same type of loan (like home loans) within a 14-45 day window are typically counted as a single enquiry.

Solution:

• Space out credit applications by at least 6 months.
• Research and apply only to lenders where you have a high chance of approval.
• Check your free credit score regularly to monitor your credit health without impacting your score.
• Avoid applying for multiple credit cards or loans simultaneously.
• Pre-qualify for loans when possible to avoid hard enquiries.

6. Outstanding Debt Amount

This is the total amount of debt you currently owe across all loans (not including credit card balances that you pay off monthly).

A very high total debt burden compared to your income (known as a high Debt-to-Income ratio) can worry lenders about your ability to take on new EMIs.

Solution:

• Create a debt repayment plan prioritising high-interest debt first.
• Consider debt consolidation to reduce the overall interest burden.
• Make more than minimum payments whenever possible.
• Avoid taking on new debt while paying off existing obligations.
• Track your total debt-to-income ratio and work to improve it.

7. Settled or Written-Off Accounts

If you have ever "settled" a loan by negotiating to pay back less than you owed, or if a lender has "written off" your loan as a loss, it remains on your report forever.

This is one of the most severe negative marks and a guaranteed reason for a low credit score. It shows the previous default behaviour.

Solution:

• Always try to pay the full amount owed. If unavoidable, understand the long-term consequences.
• After a settlement, focus on rebuilding your score with secured credit products and impeccable payment behaviour.

8. Guaranteeing a Loan (As a Co-signer)

When you co-sign or act as a guarantor for someone else's loan, you are equally responsible for the debt.

If the primary borrower defaults, it will show as a default on your credit report as well, severely damaging your score.

Solution:

• Only guarantee loans for people you trust implicitly and whose financial habits you are sure of.
• Keep track of the EMI payments being made by the primary borrower.

9. Errors in Your Credit Report

Sometimes, errors happen. You might see a loan that isn't yours, a payment marked late that you paid on time, or an old account still showing as open.

A single error can drag down an otherwise good score. It's a frustrating but common reason for a low credit score.

Since your CIBIL score affects the loan approval process directly, a single error could lead to an unnecessary rejection or higher interest rates, making it essential to check your reports regularly.

Solution:

• You should check a free credit score report from CIBIL, Equifax ,Experian, etc., at least once a year to spot discrepancies.
• Raise a dispute directly with the credit bureau to get incorrect information rectified. This is a specialised area where experts can guide you.

10. Number of Credit Accounts

This is simply the total number of active credit accounts you have.

Having too few accounts might not give enough data to generate a high score, and having too many can make you look overleveraged and risky.

Solution:

• 2-3 well-managed credit cards and a loan if needed is often a good balance for a strong profile.
• It's better to have a few accounts with perfect payment history than many accounts with poor management.

FAQs

1. How can I check my free credit score?

You can check your free credit score through our website credithelpindia

2. How can I improve my credit score?

You can improve your credit score by paying your EMIs and credit card bills on time, try to keep the credit utilisation ratio low, avoid applying for multiple loan applications and regularly check your credit report for errors.

3. Which factor impacts the credit score the most?

Payment history is the factor that carries the most weight (35%). Paying bills on time every month is the most effective way to build or maintain a high credit score.

4. Does having multiple credit cards improve your score?

Having multiple credit cards can improve your credit score, but only if managed properly.

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Conclusion

Remember, your credit score is a reflection of your financial discipline and responsibility. By focusing on these key areas, you're not just improving a number – you're building stronger financial habits that will benefit you for life.

Need personalised guidance on improving your credit score? Credit Help India has helped thousands of individuals achieve their target CIBIL scores through our proven strategies, experience and expert support.