Top 5 Reasons That Affect Your Credit Score
It’s impossible to predict how much your credit score will affect the outcome of your choices. Understand the factors that may have an impact on your credit score.
A credit score is an integral part of making any financial decisions to determine current monetary status. A credit score determines the creditworthiness of an investor.
In simple terms, banks calculate a credit score with the history of payments and debts of an investor. These factors determine a particular score according to which one can gauge the financial position of an investor. A credit score can also be called a credit rating.
We have listed the top five reasons which affect the creditworthiness of an investor
1. History of payments and debts
One of the most crucial factors in the credit score of any investor is their records of payments and debts. Bad debts or failing to repay loans reduce the credit score of an investor. Whereas a positive credit score motivates lenders that the investor will pay back the debt.
2. Any new credit transactions
Any new credit transactions incurred by an investor affect the credit score. A new credit transaction involves the financial transactions in the long run and gives the credit score either a rise or a downfall. Too many credit accounts can also impart financial risks, and lesser credit accounts may show low financial liquidity.
3. A credit mix policy
Credit mix refers to the different types of credit accounts owned by an investor in the investment portfolios. The credit mix of an individual also imparts a diverse effect on the credit score of an investor. A deficit or a long debt period or a failure in repaying affects the credit score of an investor.
4. Total credit allocation
Credit allocation means the credit limit of an investor and the number of times an investor uses it for borrowing or any money transaction. For the credit score, the lesser the credit used, the better it is for an investor, as it does not reflect any negative impact on the credit score. Using up credit many times showcases an imbalanced state of financial stability of an investor.
5. Any pending amounts to be paid off
An amount of loan or debt unpaid and keeps showing pending in a portfolio affects the overall credit score of an investor. Any pending amount should be paid off within its specified time frame. It will help avoid any negative remarks on the credit score of an investor. Pending loan amounts showcase a drifting credit score of an investor.
To conclude, a credit score is one of the most crucial aspects of any financial transaction. The above-mentioned top five reasons impact the credit score of investors and their creditworthiness.
