What Affects Credit Score?

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  • 23 Feb 2023

Certain factors are typically most important that can impact your credit scores, such as opening a new account or making a late payment. If you aim to enhance your credit score or want to find out what is affecting your credit rating, look into your credit behaviour. Your spending actions can be instrumental in strengthening or marring your overall creditworthiness.

Simply put, your credit rating determines your creditworthiness and enables lenders to understand if you qualify for a credit card or a loan. Your history as a borrower is crucial in determining your credit score. According to CIBIL, an individual's credit score ranges from 300 to 900. If you have a score of at least 750 points and more you are likely to get quicker and approved loans.

Let's look into crucial factors that could affect your credit score.

  • Missing Due Dates:

If you have neglected to pay your credit card bills, EMI payments, and the like, it could harm your credit rating. Credit reports reflect transactions, and this also includes a single missed EMI payment. If bills are not paid on time, the credit score can take a beating, and hence, it is vital to be prompt with one's payments. If you continue to make regular payments, it can take approximately 6 to 8 months for your credit score to improve.

  • Maintaining A Healthy CUR:

Your credit utilization ratio (CUR) is defined by the amount of credit you avail from a specified credit limit. Computed in percentage terms, an ideal CUR is one where loan applicants have less than 40% CUR of the total credit limit. For example, if you have a credit card limit of ₹1 lakh, and you have utilized approximately ₹40,000, your credit utilization ratio will be 40%. Similarly, say, you possess three credit cards that have a credit limit of ₹50,000, ₹1lakh and ₹1.5 lakh respectively. Here, you have used a total credit of ₹90,000 from all the three cards, hence, your credit utilization ratio, in this case, will be 30%. Thanks, having a low credit utilization ratio can improve your creditworthiness. Making regular credit card bill payments and avoiding inordinate credit card utilization can boost your CUR.

  • Avoid Increasing Your Credit Card Limits Regularly:

Even though you may have the flexibility of an enhanced credit limit, increasing your credit limits frequently could affect your score. Before you are sanctioned a loan, the lender aims at gauging your net worth. If you have increased your credit card limit frequently in the past, it could be viewed as a sign of being dependent on credit for all your purchases. This could be a red flag indication for any lender.

  • Close, Rather Than Settle Your Old Loans:

If you have defaulted on any old loan, it reflects in your credit history. Creditworthiness and rating go down on any default. It is imperative to ensure that you close all old loans and get a formal closure certificate from the lender. If you have accepted a partial settlement or a one-time loan closure on any old loans, it could negatively impact your credit rating. Settling a loan account means the bank is agreeing to accept a payoff amount that is lower than the amount you owe the bank. Since the bank is assuming a loss, it maintains the status of 'settled' in your credit report. This can be particularly damaging and harmful to your chances of getting an approved loan in the future. As much as possible, you must avoid the settlement aspect and instead look to closing your loans by paying them in full.

  • Ensure Your Credit Report Is Without Errors:

Check your credit report frequently to ensure it does not have any mistakes. Some common errors seen in a credit report include payment defaults or spelling mistake of one's credentials. Ideally, you must look into your credit score regularly, especially once a quarter and aim to build it with responsible credit behaviour. If you know how to check your credit score you will able to spot errors. Approach credit bureaus by logging online and presenting a dispute resolution form to fix the issue.


Having an excellent credit history and abiding by credit score rules can significantly improve your chances of getting an approved loan. Also, having a good credit score are additional things that help your credit score improve and affordable loans. Credit inquiries by lenders can affect your credit score. Knowing the difference between soft inquiry vs hard inquiry is crucial. While a hard inquiry stays on your credit report for a longer time, a soft inquiry may not impact your credit score. Lenders fix interest rates based on your credit score, and hence having an improved credit-rating can help you get loans with a low-interest rate. While credit cards and EMI payments can take the bite of your earnings, look to investing in the stock market for long-term returns. Open a demat and trading account with a full services broker such as Kotak Securities to balance your financial life and meet your investment objectives.

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