How’s your creditworthiness in the financial market? Do you get loans and credit cards quickly, or do companies give you a tough time? Whatever it is, your credit report or credit profile is responsible. It’s the mirror of your financial behavior. How many credits have you taken? Have you paid them on time? Are there any defaults?
One of the most crucial components of your credit profile is credit history. Read here about the history of credit and other essential factors that affect credit score.
What is a Good Credit History?
A good history of credit means you pay your bills on time, and of course, there is no default on your part. With a good credit history, you get loans and credit cards easily. Moreover, the interest rates of personal loans don’t burn a hole in your pocket.
What is a Bad Credit History?
A bad credit history shows outstanding bills, due EMIs, and to top it all, one or more defaults. No company is willing to give a loan to someone with bad credit history. And if by any chance they approve a loan, it will be on a ridiculously high-interest rate to cover the risk of default.
What are the Major Factors That Affect Credit Score?
Lenders consider various aspects of your credit profile and rating before giving credit. Among them, 5 major factors affecting credit rating positively and adversely are mentioned here.
1. Payment History
Your payment history captures all your late payments, defaults, and debt settlements. It also has a record of your foreclosures and bankruptcies. The lesser the gap between your due date and payment date, the better! You can earn some brownie points if your bad financial behavior was in the past and not in recent months or years.
2. Credit Utilization Ratio
Your credit utilization ratio indicates how much of your credit limit you use. Spending your entire credit limit shows you in a bad light. It means you are dependent on credit. But you appear financially responsible if you use some amount and keep the rest of your credit limit unused.
3. Length of Credit History
A long credit history provides more information to lenders. Therefore it goes in your favor if your history of credit dates back to many years, provided it’s not dented with defaults and late payments. Your credit history keeps records of your oldest accounts. So keep your old account open whether you use them or not.
4. New Credits
The lender company runs a hard inquiry on you whenever you apply for a loan or credit card. Every hard inquiry affects your credit profile. But too many of them decrease your credit score significantly, as it indicates you need a lot of loans to maintain your cash flow.
5. Mix of Credits
A mix of credit is seen positively by the software calculating your credit profile. For example, you have a healthy credit mix if you have a home loan, consumer loan, and credit card. Although compared to other factors that affect credit score, this one has a limited impact.
Final Thought
Your credit profile will remain flawless if you maintain a good credit history and manage the factors affecting credit rating at FICCO. It pays you in the longer run. You get easy approval of credits and lenders charge you with a reasonable interest rate. Commit today to stay financially disciplined to make your life easier! Also, check out A1 Credit.
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