Credit score: Credit score casts an influence on loan approvals, interest rates, and credit card approvals. A loan borrower or credit card applicant with a high credit score is likely to secure a better deal against someone with a poor or moderate score. While payment history and credit utilisation are popularly-known, there are several hidden factors which can also bring it down as well.
Understanding and managing these factors can help maintain or boost your credit score. Here, we explore lesser-known strategies to handle them.
Hidden factors influencing credit score
I. Default in loans you co-signed: Suppose you co-signed personal loan and the primary borrower missed payments, it would impact your score as if it were your debt. Therefore, it is advisable to avoid co-signing unless it is absolutely necessary.
II. Higher number of accounts with balances: Carrying balances on multiple accounts increases the credit utilisation ratio, thus impacting the credit score adversely. Therefore, it is recommended to consolidate debts where it is possible.
III. Average age of accounts: Average age of accounts gets reduced by closing old accounts. This results into reducing your credit score even if the account was active for years. Therefore, it is important to keep old cards open and active so long as they have small recurring charges to maintain history.
IV. Hard inquiry: Each time you apply for new credit, a hard inquiry appears on credit report, which lowers your score, albeit marginally, for up to a year. Consequently, multiple inquiries signal risk to lenders.
It is, therefore, recommended to look for rates sporadically not very frequently to avoid drop in your credit score.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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