1.Payment History

Credit bureaus give the maximum weightage to your payment track record when calculating your credit score. It does not only depend on whether you made the payment or missed it. Several other equations are a part of the scoring model, which may include late payments, how late were those payments, how long ago did those late payments take place, etc.

Though making late payments once in a while might now have a serious impact on your score, if you’re otherwise regular, missed payments or multiple late payments can lead to a severely lowered credit score. This is why it is advised to pay all your credit card dues and loan EMIs on time.

2. Credit Utilization Ratio

While many consumers understand the impact of payment defaults on their cards, not all are aware of the effects of the amounts they owe to different lenders. This is where Credit Utilization Ratio (CUR) comes in and has the second-highest weightage on your credit score. CUR is the ratio of the amount of credit you use divided by the total credit limit available to you. The lower the CUR, the better it is. On the other hand, if you frequently max out your credit cards, it not only causes a steep rise in your CUR but also shows that you are a credit-hungry individual, leading to a reduced credit score.

To avoid a high CUR, you can request a limit increase on your existing credit cards or apply for a new credit card. This will increase your overall limit and positively impact your credit score.

Suggested Read: Do I Need Good Credit Scores To Apply For An EMI Card?

3. Length of Credit History

To calculate your credit score, bureaus take the length of your credit history into consideration. This includes the age of your oldest and newest accounts and the average age of all accounts combined. Older accounts and an older average age of accounts have a positive impact on your credit score.

Most people start their credit journey with a basic credit card. However, you should keep the first credit card account active as you grow and get better cards. Closing your oldest account reduces the average age of your credit and may cause your credit score to take a hit. Instead of closing your old credit card accounts, you can request a card upgrade.

4. Credit Mix

When processing your loan request, lenders want to know whether you have experience managing different credit accounts. Hence, an account with a credit card, personal loan, home loan, and car loan may have a better score than an account with only a personal loan (considering both manage their accounts well and pay off balances on time). Having a diverse mix of credit accounts helps improve your credit score in the long run.

5. Credit Enquiries

The next factor that affects your credit score is a new inquiry. Whenever you apply for a loan or a credit card, the lender pulls your credit report from the bureaus to check your creditworthiness. This initiates a hard enquiry on your profile and hard enquiries may slightly dip your score. This is why it is always recommended not to apply for too many credit cards within a short span, as multiple hard inquiries may significantly impact your score.

Credit Score is not just a number; it reflects your capacity to handle credit. You must keep the above five factors in mind and improve the areas you might be lacking. For example, if you have a credit utilization ratio of 85%, it is best to avoid ringing up new bills and paying off the existing ones to reduce the CUR, as it might be the reason for a poor credit score.

Moreover, you must often check your credit report to identify any errors and resolve them soon. Regarding credit score, being vigilant and disciplined with your finances will make a significant difference in the long run.