The importance and relevance of credit score is well known now. Credit Score is an indicator of your creditworthiness issued by credit bureau. It ranges between 300-900 with higher scores indicating higher levels of creditworthiness.  This is one of the first and decisive factors that a lender looks at before deciding on your loan/credit card application.  

Individuals today are more informed about the importance of credit score. But, we have found through our interactions with our credit improvement customers on our forums that people are quite confused about what factors affect and what factors do not affect your credit score.  

We bring to you some of the common questions and answers to those that we get regarding factors affecting credit scores

I have a low income, so I think I will have a low credit score. Do I have to wait until I increase my income to obtain a credit card? 

Thankfully incomes are not a factor affecting credit scores. Low or high level of income do not set ground for your credit score. Your score purely depends on how well you have handled credit in the past. There are many individuals who earn well but have handle credit quite badly. If you have availed a loan in the past and repaid it on time, then your credit score should be good.  

Low income can become an impediment to certain high-ticket loans like home loans or vehicle loans, but you should be able to get a credit card. Check here for our recommendations on which credit card options are available for those with low salary.  

Check how can you achieve a high credit score here.  

For the last 2-3 months, I have not paid my mobile bill. I have also missed a couple of my utility bills like water and electricity bills. Are these taken into account while calculating my credit score? 

Paying your utility bills regularly is a good practice as is with your credit card bills or loan EMIs. While your loan EMI repayment and credit card bills payments add to your credit score, other utility payment delays or defaults do not count towards the calculation of your credit score as yet.  

Similarly missed insurance premiums or mutual fund systematic investment plan payments do not count towards your credit score.  

However, in the western countries, utility bill payments and your house rent payments also count towards calculation of credit scores. It may become a practice here in India too, soon. So, make sure to make all payments well on time.  

I am planning to go in for a home loan in about a year. So, I keep checking my credit score on CreditMantri every month. My friend just told me that if I check my credit score frequently, the score can go down. Is it true? 

We congratulate you for being pro-active and checking your credit scores often. We would recommend you to keep doing so considering the fact that you are applying for a home loan in the near future. This way, you would have enough time to build up your credit score in case it is low. 

When you check for credit scores at fintech companies like ours, the inquiries are considered as soft inquiries and they do not count towards the calculation of your credit score. However, each inquiry made by a prospective lender is called a hard inquiry. Increased number of hard inquiries convey to the credit bureaus that you are hungry for credit. That results in a credit score drop irrespective of whether the credit is approved or not.  

As you are looking for a home loan, we would also advise you to refrain from applying for other loans/credit cards unless it is absolutely necessary.  

I read in the newspapers that my credit score can be checked by my prospective employers. Is it true? Does having a high credit score increases my employability? 

It is true that employers in sectors like telecom, insurance, credit ratings and regulators like SEBI or IRDAI may ask for credit reports from their employees, the trend is said to be picking up. However, the employers would not be able to check the credit reports on their own unlike your lenders who can obtain a copy of your credit report from the credit bureaus.  

An individual with bad credit score is often construed as an individual who is not responsible and does not adhere to the terms of the contract/agreement. It also throws light on the financial discipline of an individual. These may be some of the factors that could work against your employability.  

We would advise you to be responsible towards credit at all times so that you can always maintain a good credit score.  

I am a frequent flyer as well as an avid online shopper. I use 4 different credit cards for different payments so that I can maximize rewards on each of them. Should I be worried that my credit score can go down due to my increased number of cards? I want to add here that I am regular in my credit card outstanding bill payments. 

Though the number of credit accounts is a determinant of your credit score, their prompt repayment carries more weight.  As long as your credit accounts are in a decent proportion to your income, you should not worry.  

It is a common credit myth that more number of credit cards push your credit score down. We have come across individuals who have just 1 credit card and yet have low credit scores and individuals who manage more number of credit cards effortlessly.  Because it all boils down to careful thought before applying for credit and be responsible once you have been approved credit.  

Having more than 1 credit card may, in fact, be helpful to you in spreading out expenses and ensuring a good credit utilization ratio. But, you should have a balanced mix of secured and unsecured borrowing in your portfolio. Credit cards are unsecured borrowings and having too many of them without any secured borrowing (home loan, gold loan, loan against property) could affect your credit score. 

To help you decide on the ideal number of credit cards an individual should hold you could read this informative piece.  

For the benefit of our readers, we would like to bring out, in brief, all the factors that impact your credit score. 

Number of credit accounts: The credit accounts (Loans and credit cards) should be in decent proportion to your income. 

Payment history: This is one of the most important factors that determine your credit score and is based on how regular you are with your payments. 

Credit Mix: The credit bureaus look for a healthy mix of secured and unsecured borrowings. 

Credit Utilisation Ratio: The percentage of your spending to approved credit limit on your credit card. 

Length of Credit History: Lenders look for a long and clean credit history which conveys that a borrower is seasoned in being responsible with credit. 

Hard inquiries: Hard inquiries are when a lender enquires about your credit report with the credit bureau. More number of credit inquiries pull down your score. 

Errors in Credit Report: Errors can be caused due to various reasons which can, in turn, bring your score down.