Repayment history, credit utilisation and more: 4 important factors that influence your credit score
Credit scores are determined by a variety of factors, each carrying a different level of weight. While the exact algorithms used by credit scoring models are unique and vary from entity to entity, there are some key factors that influence your credit score. Repayment history: It reflects whether you have paid your credit accounts on time.
For instance, late payments, defaults, bankruptcies, and other negative marks can lower your score significantly. Credit utilisation ratio: This is the ratio of your credit card balances to your credit limits. Using too much of your available credit can indicate financial stress and may lower your score.
Ideally, you should aim to keep this ratio below 30%. Types of credit: Lenders like to see a mix of different types of credit, such as credit cards, instalment loans, and collateral. This indicates your ability to manage various types of credit responsibly.
New credit: Opening several new credit accounts in a short period can indicate financial distress and may lower your score. Similarly, multiple hard inquiries from lenders within a short timeframe can also have a negative impact. Notably, different credit scoring models may weigh these factors differently, and lenders may also have their own criteria for evaluating creditworthiness.
Nevertheless, focusing on maintaining a positive payment history, keeping credit card balances low, and only applying for credit when necessary are generally good practices for maintaining a healthy credit score. Repayment history is one of the most vital factors. It reflects whether you have paid your credit accounts on time.
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