5 Things That Can Impact Your Credit Score

By admin | Oct 20, 2020

Credit score is important as it determines your creditworthiness and helps the lender decide if you qualify for a loan. One fundamental factor that impacts credit score is the credit history of the borrower. As per CIBIL, credit scores can range from 300 to 900 and those with a score of at least 750 points or above stand a better chance to get loans. 


Your credit score will have a direct impact on your financial life and your chances of getting a loan. Lenders opt for a borrower with a higher credit score as it suggests a lower risk of default and vice versa. 


If you’re wondering why your credit score has taken a hit, here are 5 things that can impact your credit score. 


Missing EMI or credit card payments


Missing out on paying your credit card bills or EMIs on time will negatively impact your credit score. Missing even a single payment will reflect on your credit report and have a negative impact on your credit history. When a lender generates your credit report it will also show the number of days the bill or EMI remained unpaid after the due date, making you a high-risk borrower. 


If your credit score is poor due to missing monthly payments, then start by diligently paying your bills and EMIs on time. Once you develop a habit of making timely payments, it will take at least 6-8 months for your credit history to improve. 


High Credit Utilisation Ratio


Credit utilisation ratio can be defined as the amount of credit availed on a given credit limit. It is calculated in terms of percentage. For example, if your credit limit is Rs 1 lakh and you’ve utilised only Rs 30,000, then your credit utilisation ratio will be 30%. 


This ratio will be calculated on the basis of the total credit limit available on all your personal loans or credit cards. Lenders prefer loan applicants with a credit utilisation ratio of less than 40% of the total limit. Therefore, the lower your credit utilisation ratio, the higher will be your creditworthiness. 


Frequent Requests to Increase Credit Limit


Requesting an increase in credit limit may trigger a “hard enquiry” into your credit report. Too many requests result in multiple hard enquiries which can hurt your credit score. It will have a negative impact on your creditworthiness and will hamper your future borrowing capacity. 


Status of Old Loans


Any default on old loans will reflect on your credit history. If your credit history shows that you’ve defaulted on a loan, make sure that you close the loan and get a formal closure certificate from the lender. Sometimes lending institutes and banks accept a one-time or partial settlement that allows the borrower to pay off the amount that is less than the amount originally owed. In cases like this the status of the loan will show as “settled” and not closed. A settled tag on your credit report will also negatively impact your credit score. 


Not Having a Credit History


Many people might be surprised by this fact but not having a credit history can have a negative impact on your credit score. Your credit score is determined on the basis of your credit behaviour, loan repayment history, credit behaviour and other factors. If you haven’t taken any credit, then it becomes difficult for the lender to determine whether you fall into the high risk or low-risk category. 


Having a good credit history improves your chances of getting a loan. As more and more lenders consider credit scores while fixing the rate of interests, a good credit score can help you bag loans with low-interest rates.




1 + 1 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.