How does a financial institution decide whether to lend you money or not? Well, it depends on your credibility as a potential borrower. Banks or financial houses focus on your credit score to evaluate if you can repay the loan on time. Credit score refers to a triple-digit score that helps the bank to determine your creditworthiness. Your credit score decides how much amount you can apply for and at what interest rate.
Credit Score Variability
If you have maintained a good credit history i.e. you’ve had a good track record of past credit card bills and loans, then you have maintained a good credit score. However, the credit score is calculated within the range of 300 to 900. You are considered to have a decent score if it falls within 500 to 700 and a high score when it’s above 750.
Now, if you are under the clouds of confusion on how to improve credit score, here’s the checklist. Here, we’ll throw light on how a credit score is calculated, and what are the essential factors that run behind maintaining a good credit score. Read on.
How Credit Score Is Calculated
The credit score is calculated by the credit bureaus that use specific algorithms to determine it. They collect the data of your past loan transactions and other credit history-related information from the authorised banks and moneylenders. However, you are subjected to pay a certain amount as scoring generating fee that varies among different credit bureaus. If you are a potential borrower then credit score calculation depends on certain factors from your end.
- Your previous repayment of EMIs, credit card bills, and loans. If you have a history of irregular payment that affects your credit score.
- A higher credit utilisation ratio.
- The number of credit enquiries on your credit history by the banks and credit service providers.
- Your profile as a borrower.
- Multiple credit plans i.e. a mix of multiple forms of loans in previous years.
- Duration of your past and ongoing credit cards.
Factors Affecting The Credit Score
There are multiple factors that run behind maintaining a good credit score. These factors are determined by the banks and financial institutions to check your credibility as a borrower. some of the important factors are here.
- Credit Repayment History
If you have a poor history of loan repayments you are subjected to a low credit score. Chances are high that your loan application will get rejected by the bank.
- Credit Utilization
This is the ratio of your monthly credit limit and your used credit. Higher credit utilization ratio means that you have a huge burden of monthly repayment. This in turn affects your credit score.
- Multiple Credits
If you have multiple credit plans, that means a host of different secured and unsecured loans in the past, congratulations! You are subjected to a higher credit score.
- Credit Report Errors
Any sort of incorrect statement regarding your credit history will reflect negatively on your credit score. Be it your loan repayment details or your document-related mistakes; you are subjected to have a poor credit score.
How To Improve Your Credit Score
Certainly, you have to maintain a good credit score to be able to get the required loans. In case if you don’t have a decent score then here are the ways you can improve credit score. Take simple steps that will go a long way.
- Try to maintain a proper discipline on your credits.
- Use your credit responsibly.
- Keep your credit utilization ratio within 30%.
- Pay all the credit card bills and EMIs on time.
- Avoid several loan applications at a time.
In conclusion, you can make the smartest move by choosing online credit service providers to avoid multiple hard enquiries. MyFinPartner is one such trusted online credit service provider associated with the authorised leading financial institutions of India. Here you can check your credit score for free. For your credit score related enquiries, you can visit our website anytime.