Factors that Affect Your Credit Score

Your credit score plays a key role in availing of credit. Lending institutions consider it a crucial factor in assessing your creditworthiness. But the tricky part is that many people realise it’s low when they get to the stage of borrowing. You can avoid this by proactively understanding the factors that affect your credit score. It can go through dips and rise based on your financial activity. Read ahead to learn how. 

A credit score is a three-digit number representing your borrowing history. It is presented on a scale of 300 to 900. Credit providers learn about your repayment history and creditworthiness through this score. It is derived after summarising your credit report and is revised periodically. 

A good credit score, higher than 710, improves your chances of getting a loan or a credit card in India. Besides approval, it also helps you access a lower rate of interest and a higher borrowing limit. On the flip side, a low credit score affects your loan and credit card applications negatively. Hence, maintaining it within the healthy range of 710 to 900 opens you up to preferential credit offers. 

Every minor change in your credit score is influenced by specific patterns in your credit behaviour. Here’s what impacts your credit score: 

• Late or Missed Payments : Repayment history is and main factors that affect your credit score. Even one missed EMI or credit card payment can leave a mark on your credit report.
  When the pattern continues, you pose as a risky borrower for prospective lenders.  Hence, prioritising payment on or before the due date is critical. Setting up reminders and auto-debit instructions helps stay consistent without active tracking. 
   

• High Credit Utilisation Ratio : Having access to credit for immediate financial needs makes sense. But when the dependency increases, you come across as credit-hungry. This does not reflect favourably in your credit report. Hence, keeping the credit utilisation low and comfortably manageable is the key. It contributes to a healthy credit score and depicts a responsible credit behaviour. 
   

• Multiple Hard Inquiries in a Short Period : In desperate times of need, applying frantically for credit can happen. It may even seem like a practical move to improve approval chances.
  But each application leads to a hard inquiry on your credit report. With several inquiries in a short span, the credit score suffers. It signals an uncalculated borrowing approach, making getting credit challenging. Hence, it helps to always check eligibility and apply thoughtfully. 
   

• Defaulting on Loans or Credit Cards : Failing to repay a loan or credit card bills for an extended period despite repeated reminders and grace periods has a significant impact on a credit score.
  Defaults leave a dent on your credit history for years and are taken very seriously by credit issuers. You can improve the situation gradually by clearing pending dues and showing responsible borrowing behaviour going forward. 
   

• Closing Old Credit Accounts : When considering what impacts your credit score, old credit accounts may rarely come to mind. But the length of your credit history also affects your credit score. A lengthier history works well to balance out the credit utilisation ratio, as opposed to closing early.
  It gives lenders more input into how you’ve managed credit over the years. Hence, it’s wise to keep the old account running, especially with no annual fees. 
   

• Errors in Credit Report and How to Fix Them: Sometimes, inaccurate information in your credit report can lead to a low credit score. This can pertain to personal details, duplicate accounts, wrongly reported missed payments, or closed loans still reflecting as ongoing.
  It helps to review your credit report regularly to spot such errors promptly and report them to the designated credit bureau. They will require details of the issue and supporting documents for correction. This saves you from damage to your credit score with no fault of yours.

A low credit score is understandably discouraging, but once what can affect your credit score is clear, bouncing back from the setbacks is simpler than you’d think. Consistent improvements in borrowing habits and fixing damages, as explained above, gradually improve the credit score. Using smarter credit options is also important. Consider HDFC Bank Credit Card to find a card that matches your needs and supports responsible borrowing. 

Click here to apply now!



*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals are at the sole discretion of HDFC Bank Limited. Credit Card approvals is subject to documentation and verification as per the Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.