Factors Affecting Credit Score — What Is My Credit Score?

Factors That Impact Your Credit Score

• There is a common misconception that your age, salary, and employment history decide how creditworthy you are. That is simply not true.

• These factors play just as much a role as your race, ethnicity, nationality, religion, gender, marital status, area of residence, or assets play in determining your credit score — None!

• The system used to calculate your credit score is efficient, and only assesses your behavior pattern concerning credit.

What Is My Credit Score?

• In layman’s terms, your credit score is a number that tells how worthy you are of getting credit.

• Lenders use your credit score to evaluate whether you will repay your debts responsibly or not. 

• A high credit score would make you a worthy candidate in the eyes of lenders, whereas a low credit score could easily hinder your chances of getting credit.

4 Reasons why your credit score dropped - Why Did My Credit Score Drop?

I have always been particularly keen on keeping an eye on my finances — I have never missed a payment, my accounts are in good shape, and I always keep my credit utilization within 30%.

Why Did My Credit Score Drop?
There can be a few surprising but very pertinent reasons for a sudden fall in your credit score. Let us dig deep into them.

1. Old and Inactive Accounts

Have you ever found an interesting promotional offer in a shopping mall or a  retail outlet and applied for a credit card? Well, I did at some point in time. And being my ever-forgetful self, I had conveniently forgotten about it.

2. A New Hard Inquiry

My mobile phone connection was pathetic, and I had decided to switch over to a different teleservice provider. A gentleman from the new phone company visited my house to get all the paperwork done. There were a handful of forms to be filled, read, and signed. As I was running late, I had blindly signed wherever the person asked me to. Unknowingly, I had permitted the company to conduct a credit check to ensure that I have the financial capability to afford their services. In short, a hard inquiry was made without my knowledge.

3. Paying off a Loan

This one was my strangest finding. That feeling of satisfaction and relaxation when you finally settle a loan isn’t relaxation in the financial world. You need to have a variety of accounts for maintaining a good credit score. If you pay off a loan, the loan account is closed, and you lose an account. Your credit score drops inevitably.

4.Being an Authorized User of a Delinquent Account

A few years ago, my grandfather had added me as an authorized user(second account holder) of one of his accounts to help me build my credit score. Unfortunately, my old and forgetful grandfather missed a payment. Since I am an authorized user, credit bureaus include that account in my credit report although I never actually use it.

4 Reasons to check your credit score - Why you should monitor credit score ?

4 Reasons why you should monitor your credit score :

•     Reporting Errors
•     Identity Theft
•     Financial Infidelity
•     Progress Report

A credit report is a detailed document that contains a consolidated record of your finances. Credit bureaus like Equifax, Experian, and TransUnion maintain this record. They evaluate your financial information to calculate your credit score, which is a numerical score that decides your creditworthiness.

Reasons Why You Should Monitor Your Credit Report :

Reporting Errors :

Credit report errors are quite common. Your card-issuing company might make mistakes while filing your report with the credit bureaus. It is also possible that the credit bureaus make errors while consolidating your overall credit report.

Identity Theft :

Have you heard about credit card fraud, scams, data breaches, and identity thefts? Sounds scary, right? An imposter could steal your personal information, such as Aadhaar and PAN, driver’s license number, date of birth, or other financial information and use it for their own financial gain. These are serious crimes that can not only affect your finances but also ruin your credit history.

Financial Infidelity :

Infidelity indicates a breach of trust. There have been those unfortunate situations wherein a person was betrayed by a trusted or loved one. Don’t be surprised. Incidents like this have become quite frequent, and many people suffer although it is not their fault at all.

Progress Report :

Checking your credit report gives you clarity and aids you in planning your finances well ahead. Your credit report tells you exactly how much you owe to whom and by when you need to settle the amount. If you are in debt, you get to know about the total amount and also track your monthly progress in resolving the debt.

What is good Credit Score ? - 4 tips for good credit score

Fix Your Credit Utilization Ratio

You should keep your credit utilization ratio within 30%. If you notice that your expenses are exceeding 30% of your credit limit, your credit scores will inevitably drop. Consider increasing your credit limit in such a situation.

A higher credit limit automatically brings down your credit utilization rate, provided that your expenditure or credit balance remains constant.

You may call your credit card issuing company and request for an increase in the credit limit or make an application online.

You could also get another credit card for the same purpose. However, increasing your credit limit isn't a piece of cake, and you might have to go through a rough road.

Once you successfully manage to improve your credit limit, spend carefully - your expenses must not increase.

This will balance out your credit utilization rate, and a low utilization rate boosts the credit score.
Don’t Apply for Too Many Credits Simultaneously

Hard inquiries deduct points from your credit score. If you apply for too many lines of credit at a time, each will amount to a hard inquiry.

These hard inquiries remain on your credit report for quite some time. Many hard inquiries at a time will not only reduce your credit score but will also make you seem quite desperate for cash.

Hence, lenders will not be able to trust you. So whenever you apply for credit cards, spread the applications apart over a long period.

How can I stop unauthorised companies to check my credit history?

A hard inquiry can be hard on your credit score, especially if it is an unrecognized one. Now you must be wondering how it could be unrecognized. Well, a hard inquiry could have happened for several reasons. It could have come from an authorized lender, it could be a reporting error, or it could even indicate possible identity theft. Let me tell you about these three issues in detail.

A hard inquiry on your credit report can ideally be made only with your permission. An organization cannot make a hard inquiry unless you authorize it. However, some situations can be confusing.

Even if you haven’t applied for a loan or a credit card recently, you might have undergone minor changes in your lifestyle that resulted in a hard inquiry. You might have inadvertently permitted your internet service provider, cable company, teleservice provider, and even your landlord to conduct a hard inquiry on your credit report. You probably signed on documents without carefully reading them, hence not realizing that you have authorized the company to perform a hard inquiry. Even upgrading your credit card or applying for an increase in credit limit could result in a hard inquiry.

If you find a hard inquiry that you didn't authorize, it could either be a reporting error or fraudulent activity. You can keep an eye on your credit report using mymoneykarma's Intelligent Finance Tool. 

This tool shows you the source of all hard inquiries made on your credit report. Once you know the name of the lender under suspicion, you can search online for contact details and approach the concerned lender to check the reason for the hard inquiry.

What is my Credit Score - Impacts on Credit Score

High-Impact Factors

• Credit card utilization: How much should you borrow through your credit cards? Experts recommend that you shouldn't exceed 30% of your available credit limit. A low rate of credit utilization indicates that you spend responsibly. It also suggests that you are more likely to repay the loan on time. Additionally, keeping a substantial buffer on your credit limit also helps you in times of crisis or financial emergencies.
• Payment history: Pay your bills on time. By doing so, you let lenders know that you are reliable and that you ensure timely repayment of credit. If you miss a payment, your credit score could fall significantly.
• Negative remarks: Your credit reports must be free of any disparaging remarks. This includes accounts in collections, bankruptcies, as well as foreclosures.

Medium-Impact Factors

Age of credit history: This doesn't refer to your actual age. Rather, it shows how long you have been managing credit. You will be considered more worthy of getting credit if you can prove that you have been maintaining your credits responsibly for a longer period. To sum it up, avoid closing your oldest credit card account, as it might drastically bring down your credit score.

Low-Impact Factors

Total accounts: This doesn't just refer to your savings accounts. It includes the number of credit cards, loans, or mortgages that you have. A variety of accounts is always preferable, as it shows that you have been trusted with credit by other lenders.

Hard inquiries: A hard inquiry refers to applying for a new line of credit - be it a loan, a new credit card, a rental apartment, or a mortgage. Too many hard inquiries in a short period present you as desperate for credit. It also indicates that several other lenders have refused you the same.


How is My Credit Score Measured?

Not using a beam-balance, for sure! I'm just kidding. It is a complicated fact-based mathematical model - an algorithm to be precise - which evaluates your financial history and comes up with the score. You cannot possibly calculate it on your own.
Are you still confused? Put yourself at ease, as we are here to provide you with the necessary  information to help you maintain a good credit score.

Why Did My Credit Score Drop? - Being an Authorized User of a Delinquent Account

There can be a few surprising but very pertinent reasons for a sudden fall in your credit score. Let us dig deep into them.

Old and Inactive Accounts :
 
Have you ever found an interesting promotional offer in a shopping mall or a retail outlet and applied for a credit card? Well, I did at some point in time. And being my ever-forgetful self, I had conveniently forgotten about it.

An inactive account is of no profit to a lender, and a lender can automatically close it without giving you notice. Also, there’s no standard law to decide on how long your account needs to be inactive for before the lender can automatically deactivate it.

The solution to this problem? Well, I have learned my lesson, and so I have set up my internet bill to be auto-deducted every month from another one of my long-forgotten credit cards. You could do the same. Remember to set up auto-pay so that you don’t miss a single payment.

Although you haven’t applied for a loan or a credit card recently, you might have undergone similar minor changes in your lifestyle that resulted in a hard inquiry. You might have inadvertently permitted your internet service provider, cable company, teleservice provider, and even your landlord to conduct a hard inquiry on your credit report. Upgrading your credit card or applying for an increase in credit limit can also result in a hard inquiry.

The solution to this problem? I have become super vigilant. Now I read documents before signing on them; additionally, I always ask a service provider or a lender if the transaction involves a hard inquiry. If you find an unauthorized hard inquiry, it could be fraudulent activity, and you must take action immediately.