A credit score is a numeric summary of your entire credit history. It is put together by credit bureaus from the information provided by financial institutions and lenders. Credit score is the most essential factor in determining your credit worthiness and getting you the best interest rates. A good credit score means less interest on your advances and vice-versa.
Having a good credit score means more savings by avoiding paying higher interest charges. You would be aware of certain features which directly affects your credit score, like defaulting on payments, paying the only minimum balance due etc. there are lesser known factor too which might counter affect a good credit score. Let us have a look at the other preventive measures.
You might not be aware, but a high credit utilization limit gives a negative feedback to your credit bureau and affects your credit score over time. The utilization limit can be calculated by dividing the total outstanding amount with the person’s credit limit. It’s is favourable to maintain a credit utilization ratio between 20% -30%, as it is gives a positive impression on the person’s credit limit.
Financial institutions or lenders check your credit history before providing you a credit. Multiple inquiries in the past, are reflected on your credit report, which also affects your credit score. If there have been a number of inquiries, it will project you as hungry for loan which might refrain the lender from giving you advances.
Make sure you apply for a credit card only if needed, otherwise your credit score might be affected. Also, refrain from making too many credit card applications within a short time frame, as it can have an adverse effect on your credit score.
Additional reading: 6 WAYS TO LOWER YOUR CREDIT CARD INTEREST
At times, even the lending institutions or credit bureaus might make mistakes in your credit report which you wouldn’t be aware of. Check if any payments made in the near past are missing from your reports. Also keep a vigil for frauds and thefts of your card. It becomes important to check one’s credit report and inform the respective financial institutions to take corrective measures against any errors.
Additional reading: DIFFERENCE BETWEEN CREDIT SCORE, CREDIT RATING AND CREDIT REPORT
Your payment history comprises of 35% of your credit score. If you have been consistently missing out on your payments, you’re in for a major downturn in your credit score. Even a single default of your EMI gets reflected negatively on your credit report. It’s advisable to always make payments duly on time.
A settled account is a negative comment on your credit report. Settling your debt means that the creditor has given up on recollecting the debt amount from you. Financial institutions or lenders usually keep away from any settled accounts and in the process, the credit score takes a hit from this. It’s one of the worst things that one can have on the credit report.
An increased credit limit on your credit card has benefits like the flexibility of availing more funds. If you aren’t cautious, this too can affect your credit score. Frequently requests to increase credit limit, are pulled out and a hard inquiry is done. Frequent increase in your credit limit is seen by the lenders as a sign of depending on the bank’s advances to manage expenses.
If you don’t have a credit history, you’re making it burdensome for the lender or the financial institution to ascertain your creditworthiness. In simple terms, no credit history means no credit score.
Avoid opening too many credit accounts,your credit score holds details of about 10% of the new credit accounts.Opening new multiple accounts lowers the average credit rate of a credit account, which means a lower credit score.