Credit score being an indicator of a person's ability to repay a debt serves as a crucial resource for banks and NBFCs to provide loans.
A strong credit score often puts you in a strong spot when it comes to making enticing loan deals available. These are the parameters used in the estimation of the credit score:
Payment History : High Impact
The history of your payments plays a key role in determining your credit score.When you have been on a consistent basis in the payment of your loan EMIs, credit card bills, etc., you are considered a responsible borrower and a low risk to lenders.Such behavior also attracts preferential interest rates and speedier approvals for loans.
Credit Utilisation Ratio : High Impact
CUR is the second biggest factor in credit score calculation, relating to the total credit used by you in proportion to the total credit limit that you have available.
You can measure this by dividing your total outstanding balance by the total available credit cap. It is recommended to keep it close to 30%.
Credit’s Age – Medium Impact
Longer credit history demonstrates expertise and accountability in credit management.Having treated credit responsibly in the past and continuing to make prompt payments has a beneficial impact on the credit score.This is why using cards with a longer history is often better than those newly acquired.
Credit Mix : Low Impact
Having a healthy mix of unsecured and secured credit could potentially improve your credit score.While its effect is not as high as the usage ratio and the payment history, borrowing only one form of credit in large amounts is not considered good by lenders.Rather than these, when determining credit score rough inquiries are often factored-in.
