What Is A Credit Score & Why Does It Matter?

What Is A Credit Score

Written by Aaliya Shaikh

A piquant and humorous writer with the love to scrawl and create. For me writing is supreme. To believe that I can give words to my thoughts and connect to people through it is extraordinary.

December 3, 2021

What is a credit score?  If you don’t know, it’s a good idea to learn because this seemingly insignificant amount can have a significant impact on your financial situation. 

What Is A Credit Score? 

Your CIBIL score is a measurement of your creditworthiness, or how perilous it is to borrow money from you. The most commonly utilised FICO score runs from 300 to 850. If you think about what is considered a good CIBIL score, then remember that the higher the number, the better. Three main bureaus—Equifax, Experian, and TransUnion—create credit reports with your score depending on various factors:

  • 35% of your score is based on your payment history, which includes late payments and delinquencies.
  • The amount you owe accounts for 30% of your total.
  • The length of time you’ve had accounts for 15% of the total.
  • 10% of the credit used is due to the type of credit utilised.
  • Your new credit accounts for 10% of your total credit.

What Affects Your Credit Score & Why Does It Matter?

Now that you know what is a credit score, let us understand the factors that affect your CIBIL. While each scoring model’s specific criteria vary, the following are the most prevalent elements that affect your credit ratings. 

Payment History

The most important aspect in determining your CIBIL score is your payment history, and even a single false or missed payment can jeopardize your score. Lenders want to know that you will pay back your obligations on time when they assess you for fresh loans. Payment history accounts for 35% of your FICO® Score, which is used by 90% of the nation’s top lenders.

Check out: Credit Score vs Credit Remarks

Amounts Owed | What Is A Credit Score? 

Your credit consumption, as assessed by your credit utilisation ratio, is the next most important factor in your credit ratings. Divide the entire revolving credit you’re currently utilising by the total of all your outstanding credit limits to get your credit utilisation ratio. This ratio examines how much of your available credit you’re utilising, and it may indicate how dependant you are on non-cash funds. Using more than 30% of your available credit is seen as a red flag by creditors. Your credit utilisation makes up 30% of your FICO® Score.

Credit History Length 

The length of time you’ve had accounts for 15% of your FICO® Score. This represents the average age of all your accounts, the longest credit account you have, and the latest credit account you have. Your CIBIL will be higher if you have a longer credit history.

Credit Mix | What Is A Credit Score?

Top number holders frequently have a varied credit portfolio, which may include a vehicle loan, credit card, student loan, mortgage, or other credit products. Credit scoring models look at the different sorts of accounts you have and how many of each you have to determine how well you handle a variety of credit products. Your FICO® Score is based on your credit mix, which accounts for 10% of your total score.

New Credit

Your credit score is based on the number of credit accounts you’ve lately opened, as well as the number of hard inquiries lenders conduct when you apply for credit. Too many accounts or enquiries can imply a higher level of risk, which can lower your credit score.

What Is A Perfect Credit Score?

We know what is a credit score but there is something called a perfect number. It’s difficult to achieve a perfect credit score of 850, but an outstanding credit score is more attainable. Excellent credit can help you qualify for the best credit cards, mortgages, and competitive loan rates, which can save you money over time. The greatest score you can have is “Excellent.”

Lenders examine a concise overview of your financial history, known as your credit report when you apply for credit to see if you qualify for a certain type of credit. Your credit score is a three-digit number that appears on your credit report as we understood above. Your score assists lenders in determining your ability to repay money owed to you. Hence, it is important to keep a frequent tab on your credit report.

What Can Jeopardize Your CIBIL?

As previously mentioned, several key aspects of your file have a significant impact on your CIBIL score, perhaps negatively or positively. The following typical behaviours can derogatory marks on your credit report:

  • Missing Payments
  • Using Too Much Available Credit
  • Applying For Too Much Credit In A Short Period
  • Over Using Available Credit
  • Defaulting On Credit Accounts

I hope you liked reading this blog on “What Is A Credit Score & Why Does It Matter?” If you did then make sure you check out our other informative blogs linked below! 

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