What are The Factors That are Included In The Calculation of Credit Score? | Credit Help India

What are The Factors That are Included In The Calculation of Credit Score?

A credit bureau (such as TransUnion CIBIL, Experian, CRIF High Mark and Equifax) will consolidate your past credit history and repayment conduct. Usually a credit score ranges from 300 to 900, with 900 as high as possible.

More creditworthiness is attributed to you and vice versa. A score of approximately 750 or higher is usually considered suitable for a lender like a bank to accept your application.

Here are 5 factors which play a major role in calculating the credit score:

  • Repayment History: The most positive influence on the credit score is the timely repayment of existing credit cards. In comparison, as reimbursement delays increase, the credit score has a growing negative effect. The higher your timely payments percentage, the higher your credit score. This is one of the weighted variables used to measure your score as a trustworthy borrower is noted by a clear timely payment pattern. Banks are optimistic that payments will be made on time. Similarly, even a late payment or two may have a big adverse effect on your loan score as it means that you cannot be counted upon to pay on time. It is a very critical factor in having a good score to pay all EMIs, credit cards and all other bills in time.

  • Number of credit accounts: Credit bureaus look at the total number of loans to assess your credit score (Vehicle, Home,Credit Card ,Education, Personal loans etc ). A greater number of credit accounts mean a selection of lenders found you eligible for the loan. However, compared with other considerations, this element is weighed relatively lightly. It's not advisable to request multiple loans or cards at once just in order to raise your score and get more credit accounts. This means you are in desperate need of credit, when looking for credit for several lenders. If there is a relatively large amount of loans and credit cards in relation to the reported income, the credit score will have a negative effect.

  • Utilization of allocated credit limit: When you have 3 credit cards with a Rs. 1 lakh credit limit each, and you tend to almost always use the credit line in full, the risk is high that the banks might think you are hungry for credit. Likewise, it is likely to be denied if you do not use the 3 credit card and apply for the 4th card, so banks can consider that you have overly unused credit limits. Therefore it is better to always use less than 30 % of the loan cap to best influence your credit score.

  • High percentage of unsecured credit: The best option for your portfolio is to provide a combination of secured credit (Home Loan, Car Loan) and uninsecured credit (personal loan, credit card). The effect on your credit scoring is most positive. A combination of various types of loans to show fast reimbursement would have a positive effect on your ranking. If your portfolio includes a high percentage of unsecured loans, your credit score will be adversely affected.

  • Length of credit history: The longer your credit history, the better the banks are, the more accurate knowledge they have about your credit behaviour. If you hold a credit card for three years, for instance, future borrowers are able to see a substantial amount of time for the repayment behaviour on the card. Your banks are sceptical while your credit is fine, since they do not know enough about your payment habits. It is also advisable that you do not give up older credit cards as they offer prospective lenders a more complete credit image.

  • Excessive loan applications: The lender will receive a copy of your credit reports when you apply for a new loan or credit card to decide whether you are eligible for a loan. This is regarded as a credit investigation. Too many credit inquiries have a negative effect on your credit score without a corresponding approved loan. If you notice a lender has declined your request for a fresh credit, other lenders are most likely to also refuse your request for the loan. Moreover, even with the acceptance of your loan application, too many requests would possibly have a detrimental effect on your score within a short period of time.

  • Number of negative markings: One of many things – written-off, settlement, DPD, suit filed are negative flags in your credit report. Again, this is a highly weighted factor that might significantly limit your eligibility for a loan by a reasonably high couple of negative signs. A negative sign demonstrates that in the past, you have not handled your credit properly and are warning future lenders.

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