Six Factors that Affect Your Credit Score Management

When you apply for a home loan, there are many factors that go into determining the rate of interest that you will be offered, how much loan amount you can avail, and even if your loan will be approved or not. While your income, age, employment history, etc., all have an important role to play in this, equally important is your credit history or credit score.

The higher your credit score, the more likely you are to get approved for your home finance and also get favorable home loan interest rate. The lower your credit score, the more difficult things may be for you. So, it is always a good idea to keep an eye on your credit score and make sure that it is in the higher levels, especially before you go to apply for a home loan.

Knowing the factors that affect your credit score will help you get your credit score under control, if it is not already, or help you improve it easily. So here are the top 6 factors that affect your credit score that you need to be aware of:

It goes without saying that the best way to get this factor under control is to make all your payments on time. Make sure that your loan EMIs and credit card bill payments are automated or have standing instructions to debit directly from your account before the due date. This way, you won’t miss any payments or forget to pay your bills before the due date.

The best thing to do to avoid this is to stop indiscriminately applying to all the banks or NBFCs but to carefully research, compare, and shortlist a few to apply to. This way your chances of rejection too will be lesser. 

Secured loans are those that require a collateral, such as vehicle loans and home loans. Unsecured loans are those that do not require collateral, such as personal loans and credit cards.  The best thing to do is to pay off your unsecured loans so that you have a higher credit score.

1. Mix of loans: This has a weightage of 10%. This refers to your portfolio of loans and the mix of both secured and unsecured loans that you have. The more secured loans that you have, the better it will be for your credit score.
2. Loan enquiries: This has a weightage of 10%. Any time you enquire for a new loan, the lender makes an enquiry to the credit rating agency about your credit history for a credit report. So, all these enquiries are logged with the credit rating agencies. The more the enquiries means the more credit hungry you are as an individual, which is again a red flag for future lenders.
3. Loan tenure: This has a weightage of 15% and refers to the duration of time you have been paying your loans or credit card bills on time. That is why the older your credit cards which are still in use, the better it is for you.
4. Credit utilisation: This has a weightage of 30%. It is the percentage of your available credit limit that you use on an average every month. Ideally, this should not exceed 30% of your credit limit. A person who has a higher credit utilisation score comes across as having undisciplined spending habits which would be a red flag for future lenders.
5. Repayment history: This has a weightage of 35% and is a history of all the payments you have done on your loans and credit card bills. Any late payments or defaults are recorded and can lead to a lowering of your credit score.

Take these factors into consideration, work on them, and you will surely be climbing your way to a high credit score in no time at all!