First thing first, what is a credit score?
A credit score is a three-digit number that indicates your credit worthiness or the likelihood that you will repay the money you borrowed. Credit scores generally range from 300 to 900. The higher your credit score, the more the chances of approval for a new and better credit.
Why is your credit score important?
Credit Bureaus collect repayment track records and credit usage data for users from various financial institutions. This creates a comprehensive picture of a user’s financial health and credit score. Through this, they decide whether to give credit to the user. Thus, your credit worthiness for any loan in future depends on your credit score.
Factors affecting your credit score:-
Payment history – This is the most important factor. Timely payments improve your credit score while missing a payment could decrease it. Also, the longer you delay the payment the severe is the effect on credit score.
Credit utilization – is an indicator of whether your spending habits are sustainable and if you’re likely to face serious financial problems in the future. This has a high effect on your credit score.
Age of oldest account – The older your credit account, the better your CIBIL score would be. This has a medium effect.
No of accounts – higher the number of accounts, higher would be the credit score. This has a low effect.