A Brief Insight Into Credit Score Calculation

Your free credit score is one of the most important factors when it comes to getting any kind of loan from a financial institution. It is important to have a good credit score to prove creditworthiness and get instant approval on any kind of loan that you want. If you want to get into new borrowing, having a good credit score will require the right credit activities and detailed information about how the credit score is calculated. Having the right information and complete insight into credit score calculation will actually help you improve the score with the right credit activities. Let us quickly take a look at all the credit score factors now. They play a vital role in the CIBIL score calculation process.

Payment

Payment is the first and most important factor that is considered by the credit bureau when it comes to the credit score calculation process. Payment takes about 25% of the entire credit score calculation. This means it is very important to have a clean track record and a smooth repayment history on your existing loans. With the help of a smooth track record and a clear payment history, it is very easy and important to get a good credit score. Whenever you decide to have a good credit score, it is important to consider the right payment track record and clean history. Since it constitutes 25% of the credit score calculation, if you delay or miss payment on your credit card bill or loan repayment, your credit score will be completely damaged. Know How to Calculate Business Loan EMI Online.

Credit mix

Credit makes up around 10% of the entire credit score calculation. It is the mix of all the credit accounts that are active in your credit profile. A good credit score depends very much on having a balanced credit mix. A balanced credit mix comes from having the right mix of both unsecured and secured loans in your credit profile. If you keep on taking unsecured loans, they will not be balanced ones and your credit score will be affected. Therefore, if you have a secured credit card, you can always go for an unsecured personal loan to balance the credit mix in the right way.

Several applications

All the loan applications for credit cards and new loans are taken into consideration when the credit score is calculated. Multiple credit applications actually lead to credit damage. Whenever you apply for a new loan, the loan provider runs a hard query on your credit profile, which eventually damages your credit score. It constitutes 25% of the credit score calculation, which is a huge part. Therefore, if you are trying to improve your credit score, make sure you do not apply for multiple loans within a short span of time.

Credit utilisation ratio

The credit utilisation ratio takes up 25% of the entire credit score calculation. This ratio is actually the ratio between the total credit limit given to the individual and the credit limit that has been exhausted by the individual. Over utilisation of your credit limit will negatively impact your credit score. This is an important factor that is taken into consideration when your credit score is calculated by different credit bureaus.

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Wrapping up

Check your free credit score often to improve it and keep in mind all the factors discussed above. When you take care of all the credit score factors properly, you eventually get a good credit score based upon the CIBIL score calculation.