What are the factors determining my Credit Score?
Payment history: A history of paying bills on time helps your credit score, while late or missed payments tend to lower it. Payment history is the single biggest scoring factor, accounting for as much as 35% of your Credit Score.
Credit utilization: Credit utilization is the amount of available credit you’re using. To determine your credit utilization ratio, add up your outstanding balances on revolving credit accounts (such as credit cards) and divide that by the sum of the credit limits on those accounts. Then multiply by 100 to get your utilization percentage. If you owe Rs. 2,500 on your credit cards with a total credit limit of Rs. 10,000 your credit utilization rate is 25%. Your credit score will suffer as you “max out” your credit limit by pushing utilization on any one card, or in total, toward 100%. Experts recommend keeping your utilization ratio below 30% to avoid a substantial and rapid decrease in your credit scores. For the highest credit scores, you should aim to keep your utilization below 10%. Amounts owed on your accounts is responsible for about 30% of your Credit Score.
Length of credit history: Your credit scores will tend to rise over time as you gain experience handling debt. If you’ve only been using credit for a few months or years, you can’t do anything to accelerate that, but establishing a record of timely payments early on in life will help you benefit as much as possible as your history stretches on. Length of credit history can constitute up to 15% of your Credit Score.
Credit mix: Credit scores reflect the total amount of outstanding debt you have and the types of credit you use. A variety of loans, including both installment loans and revolving credit, can lead to higher Scores. Credit mix can influence up to 10% of your Credit Score.
Recent applications: When you apply for a loan or credit card, you trigger a process known as a hard inquiry, in which the lender requests your credit history (and often your credit report as well). Hard inquiries typically can have a small, short-term negative effect on your credit score. As long as you continue to pay your bills on time, your credit score typically will rebound quickly from the effects of hard inquiries. (Checking your own credit is a soft inquiry and does not impact your credit score.) Recent credit applications can account for up to 10% of your Credit Score, but they are normally never the sole reason an application is declined.