Finance

Understanding Your Credit Score and Factors Affecting It

Depending upon your credit score, you become eligible to take a particular kind of loan or line of credit to meet instant needs and emergencies.

There are various factors that affect the credit profile of an individual and determine creditworthiness. If you have past experiences of borrowing, you will surely come across the term credit score as that is a vital factor that determines your eligibility to take a loan.

A good credit score always has various benefits and perks in borrowing, whereas a low credit score will make it difficult for you to take a loan. It is important to build your credit score and monitor the changes from time to time in order to build a good credit profile that makes you eligible for an affordable loan. An Experian credit score is not only responsible for loan approval but also the affordability of the loan so an individual with good credit is always judged as responsible and an affordable loan is granted by the loan provider easily. Therefore, if you need a personal loan or any sort of loan for various purposes, understanding your credit score and the factors that affect it will be very important.

What is a credit score?

A credit score is a 3 digit number that holds a lot of importance in terms of credit eligibility and credit profile. Having a good credit score is the eligibility criteria with the help of which the loan provider defines the creditworthiness of an individual. This three-digit score is determined with the help of past financial activities, repayment history, credit account, credit ratio utilization, and various other credit history activities. Therefore, an individual with good credit proves his creditworthiness by maintaining a good credit profile from past to present.

Therefore, it becomes very easy for a loan provider to offer a loan to an individual with a high credit score. An individual with a low credit score will not be able to prove his creditworthiness and will not be portraying himself as a responsible borrower. It becomes very risky for an individual to get a loan with a low credit score. A credit score is built over the years with various activities and factors affecting it. If you are trying to build and improve your credit score, find the factors below that can affect your credit score.

Factors affecting credit score

Paying bills on time will impact your credit score hugely. It is one of the important factors that constitute 25% of the total credit score. Therefore for individuals that are building credit scores, it is very important to focus on timely payments as that can increase your credit score like nothing before. Making timely payments will increase your credit score by 50 points.

The credit utilization ratio :

It is the second most important factor that is counted for impacting your credit score. The credit utilization ratio is the ratio between the total credit limit available to the borrower and the total credit utilized by the borrower. It is not a good thing to completely exhaust the available credit limit. Therefore, an individual building credit should focus on maintaining a balanced credit utilization ratio where one needs to keep 50% of the available credit unutilized by making payments randomly. When you end up exhausting the entire credit limit available to you it seems like you are financially unstable and loan providers will never trust you with a new personal loan or any sort of loan.

Outstanding amount :

Do not keep any overdue outstanding amount after paying your bills. When you pay a credit card or any installment build, you will find two options: minimum amount and total bill amount. One needs to pay the total bill amount and ignore the minimum bill amount if you are trying to build credit. When you keep an outstanding amount on your bill, it will damage your score.

Keep credit score open :

Keep your credit accounts open even if you do not use them. Credit accounts like credit cards hold 25% of the entire credit score and it is also one of the most important factors that can impact your credit score movement. If you need to improve your credit score you need to keep your credit accounts with long credit history open even when you do not use them.

Wrapping up

It is very important to build your Experian credit score with the help of the following factors mentioned above. Credit score check free online process is one of the most essential ways to monitor and improve your credit score.

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