Factors Affecting Credit Score

These factors have positive and negative effects on credit scores. This can be understood as follows:

1. Payment History: Payment History reflects the repayment habits of a person and the duration of repayment of the loan by a person,i.e., whether a person repays the credits on time or late or falls under a category of a deflator.

• Positive Impact: On-time payments for credit cards, loans, and other credit accounts increase the credit score.
• Negative Impact: Late payments, defaults, bankruptcies, or other negative marks indicating a failure of repayment adversely affect the score.

2. Credit Utilisation: Credit Utilization reflects the amount of credit being used about the amount of credit available.

• Positive Impact: Maintaining a low ratio of credit card balance to a credit limit is considered favorable.
• Negative Impact: High credit card balances compared to credit limits may reflect financial strain.

3. Length of Credit History: This factor considers the duration for which credit accounts have been active.

• Positive Impact: A longer credit history generally reflects more experience managing credit and creates a positive impact on credit score.
• Negative Impact: Limited credit history is not considered good in this field.

4. Credit Mix: Credit Mix shows the combination of various types of credit (credit cards, installment loans, and mortgages) used by a person.

• Positive Impact: A mixture of credit cards, installment loans, and mortgages, may be viewed positively.
• Negative Impact: Limited variety in the types of credit utilized may have an adverse impact.

5. New Credit: New credits show the recent applications made for credit.

• Positive Impact: Responsible management of new credit accounts and a few applications may have a positive impact.
• Negative Impact: Opening multiple new credit accounts in a short period can be seen as risky behavior and can be considered negative.

6. Public Records and Collections: Public records like bankruptcies or tax liens are considered to calculate the credit score.

• Negative Impact: Bankruptcies, tax liens, and accounts in collections can significantly harm credit scores.

7. Financial Behavior and Debt Management: The behavior and financial habits of a person are considered under this factor.

• Positive Impact: Responsible financial behavior, including paying bills on time and managing debt wisely increases the credit score.
• Negative Impact: Frequent late payments, high levels of debt, and other signs of financial instability.

8. Credit Report Accuracy: Credit Reports prepared by the credit agencies may reflect inaccurate data. One shall keep monitoring the credit report timely.

• Positive Impact: Ensuring the accuracy of credit reports and addressing any errors promptly helps to improve credit scores.
• Negative Impact: Inaccurate information on credit reports can unfairly impact credit scores.