When you think about things you need before buying a house, what comes to your mind?
A location, society, type of house, budget, down payment, etc. right? But all of this can face a hit if you don’t have the power of a strong 3-digit CRIF credit scorebacking your application.
If your credit report says good things about your credit history, then getting any loan becomes easier and faster. In addition, you also get the liberty to avail a lower interest rate and better loan terms. Every credit decision of yours depends on this score, which is why it is very important to keep an eye on what affects it and what does not.
Let’s first look at the factors that affect your credit score:
- Payment History: This section of your credit report speaks volumes about your behaviour as a borrower. It is 35% of your credit score which is the highest out of the 5 factors considered. It doesn’t take much to maintain this part too, just pay your loan EMIs and credit card dues on time. To this effect, you can set autopay or reminders.
- Balance Credit: The next most important factor is the credit balance and utilization which is 30% of the credit score. The best practice is to maintain a low balance on all your credit accounts which is achieved with regular repayment schedules. It is advisable to maintain a credit utilisation ratio of 30% or less to steer clear of a credit hungry behaviour.
- Age of Credit Account: The longer your history of credit, the easier it is for lenders to analyze your stability as a borrower. This factor tells them whether you are a responsible borrower or not, if you take a lot of loans or not. Accounting for 10% of your credit score, this number can be stabilized by picking loans only when necessary.
- Credit Mix: A mature credit history shows that you can handle loans and credit lines but different types of credit accounts help is validating the fact furthermore. This makes 10% of your credit score and taking the relevant loans help your credit report.
- New Credit: When you apply for a new line of credit, it hurts your credit score, but only for a short term. Once you start repaying, your credit score starts rising up more than how much it fell when you applied for new credit.
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Now that you know about the factors that affect your credit score, take a look at those factors that don’t:
- Bank Accounts: Any overdrafts or transactions you make in your bank account do not contribute to your credit score. Banks use a different system to track your account activities but the number of bank accounts and the transactions you make within it have no effect on your credit score.
- Utility and Phone Bills: Your monthly bills like phone, gas, rent, water and others don’t contribute to your credit score. These aspects are checked when you open a new account but this information is not passed on to a credit bureau in India to calculate your credit score.
- Income and Assets: The money you make each month and the assets you buy with it don’t affect your credit history or report per se. While your income does factor into your loan and credit card applications, a high income may not necessarily indicate a high credit score.
- Rate Shopping: When you plan to make a big purchase, you tend to look around for the best interest rates and loan terms. These enquiries get climbed into one enquiry and hurt your credit report just once as a hard enquiry.
- Checking your credit score: You have the liberty to check your credit score as many times as you please and it wont get affected. Only when a bank makes an enquiry in reference to a loan, your score takes a dip on backs of a hard enquiry. Every individual gets a free report from a RBI-approved credit bureau in India like CRIF High Mark once a year.
With regular repayments and proper planning, you can easily maintain a credit score above 750. If you are planning to make big purchases in the near future, then avoid opening any new credit accounts.
In addition to that, don’t forget to keep a close check on your CRIF Personal Credit Score.