If you are seeking lenders who can trust you with low-interest rates and are eager to offer you credit cards, maintaining high credit scores is a must. It is essentially a score calculated based on your past financial behaviour and creditworthiness to impress a potential lender. That is why you should know what aspects will hurt your credit score in the long run.
Two accounts have a considerable impact on your credit scores, namely, instalment loans and revolving credit. The former includes fixed amount loans like student and personal loans and mortgages that get paid off in a fixed term. And revolving credit includes credit cards that require minimum monthly payments irrespective of a fixed term.
If you fail to repay either of these debt accounts on time, your credit score might get ruined.
7 Factors that Influence your Credit Score
1. Any Payment Delays
Overdue payments indicate to the lenders that you are struggling to manage your finances. Although late payment is not entirely a deal-breaker, if other aspects of your credit file are up to the mark, it could put you beneath the lending companies’ approval criteria.
2. The Age of your Credit Accounts
Also known as the length of your credit history, this factor determines 15% of your credit score. Both these are directly proportional. Hence, the longer and more ideal your credit history, the higher your credit score.
3. The Amount that you Owe
Popularly referred to as the credit utilization ratio, this factor compares debt amounts with your available credit limits. Basically, it shows how much of your available credit have you utilized. So, higher credit amounts can indicate that you might have difficulty making repayments in the future and ultimately affect your credit score.
4. All of your Personal Loans
Creditors essentially check the credit amount and payment history of all the personal loans that you have previously taken. Any lag in the repayment schedule reflects poorly on your credit score in this case.
5. Each New Application for Extra Credits
Every time you request your lender for an additional amount to be credited to you, a hard credit enquiry gets pulled on your account for a detailed check on your financial standing and repayment behaviour. Each of these hard enquiries costs you some of your credit scores.
6. Poor Payment History of Unpaid Bills
This is a given that the more unpaid bills your account is associated with, the lower your credit score goes. It shows the potential lenders that you are financially unstable.
7. Mortgages
These are by far the largest loans offered and taking one on directly affects your credit score until you can prove that you will repay it well in time.
These factors might seem intimidating and too much to work with but scoring well on your credit account is not difficult. All you need to remember to avoid hurting your credit score is to maintain an unquestionable on-time payment history.
Author Bio:
A finance enthusiast, Mihika Ghosh, works as a Digital Content Creator at Fit.Credit, an all-in-one app that helps you check your credit score for free, stores your financial documents, and gives you timely payment reminders. She creates content that educates people on how they can improve their credit scores along with other investment and finance-related topics. When she is not working, she loves to travel and read to keep up with all things finance and economics.
