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5 Major Factors That Can Ding Your Credit Score


Credit score is the number assigned to a person that indicates their capacity to repay a loan. Simply, it indicates how creditworthy you are in the eyes of bankers and lenders. Add to that, it is the basis of certain services such as telecommunications, broadband, and even apartment renting.

This affects your financial status in ways you cannot imagine. According to legal moneylender Cash Mart Singapore, typically licensed lenders base their decision in approving your loan thru credit scores. Banks also use a credit score to know how much will be your credit limit or if you are eligible for a high stake loan.  Insurance companies and utility companies utilize this as well. Your credit history can even affect your possible job, raise or even promotion especially if you are working in the financial industry.

How you handle your credit now is more important than ever. Here are the factors to consider in building and protecting your credit.

1. Bills payment history.

How you settle and manage your bills on time can impact your credit score. You must have a squeaky clean record of payments. If you have any history of delinquency, you have a slim chance of getting approved for any loan and credit card application. So better mark your calendar to settle your payments on time.

Your payment history constitutes 35% of your overall credit score. This means simply paying your mortgage, credit card bills and loan installments can help your credit score grow. On the other hand, not paying on time can drag it all the way down.

2. Debt utilization ratio.

There are three ways credit amount affect your credit scoring calculations. These are the amount of overall debt you carry, the ratio of your credit card balance to credit limit (known as credit utilization), and the relation of your loan balances to the original loan amount. To maintain a good record, keep your credit card limit up to 30 percent or less while loans must be settled on time.

High balances can affect your credit score but if you can settle it quickly it would help improve your credit score.

While there is a myth that keeping a balance in your credit card can help boost the positive effects of credit utilization, this can bring more harm than good. If you keep on not settling your credit card bill, it will accrue interests that will grow out of hand over time. The best option is to settle your credit card balance and use the card every once in a while for purchases that you can surely pay off even with cash. This is to keep your credit card account active and your credit history longer.

3. Length of credit history.

Just like tenure, the longer you stayed in a company the better chance of promotion. Same goes with a credit score that considers both the oldest account and the average of all your accounts. If you have an older credit card, it shows that you have a good way of handling credit. Avoid closing your oldest credit card as much as you can to keep your old positive credit history.

4. Types of credit.

There are several types of credit accounts such as revolving accounts (e.g. credit cards) and installment loans (e.g. short term personal loans from accredited private moneylenders).

These two can increase your credit score since it indicates how you can manage various types of credit. Having different types of loans shows that you can handle various financial responsibilities. Aside from just using a credit card, you should also get a personal loan, a car loan or a mortgage.

Just be aware that getting approved for high ticket loans such as a mortgage can drag your credit score for a while. Since credit utilization is also a main factor, the higher the loan amount, the lower your credit score gets. Fortunately, having a mortgage is also contributing to the positive effects of having different types of loans.

This means as you pay your mortgage every month, you can quickly regain a good credit score.

5. Number of new credit inquiries.

Every time that there is a credit check from your loan and credit card application, it affects your credit score. Several inquiries within a short period of time can cross out points from your credit score. Remember to keep a minimum application to maintain your credit score. If you want to make multiple loan application, do it within 15 days. This way all credit report inquiries will be considered as one hard inquiry instead of multiple inquiries.

As a reminder, information like income, bank balances, and even employment status are not included in the algorithm calculation of credit score. Age, marital status, and debit or prepaid card usage do not influence your credit history. It may affect your possibility of getting approved but does not directly reflect on your credit score.

Now that you are aware of the factors affecting your credit score, be sure to observe it properly to know how to keep your credit score healthy. A positive credit score can increase your chance of getting your loan approved and can make you land a better loan offer.