Your credit score is calculated based on different elements. They include your payment history, credit utilization, length of your credit history, credit inquires and your credit mix.

Payment history

Payment history of an individual constitutes 30% to 35% of his/her credit score. This is based on if you have paid your EMIs and credit card bills on time. This is a good habit and can improve your credit score. Late or missed payments, settlements, defaults and bankruptcies can reduce an individual’s credit score. So, to is best to keep a good payment history by always paying bills on time and in full.

Credit utilization

Credit utilization of an individual constitutes 25% to 30% of his/her credit score. Credit utilization should be low as if an individual uses too much credit, he/she is considered to be credit hungry and this can negatively impact one’s credit score. Credit card utilization should be below 30% of one’s credit limit. How much loan an individual has taken also accounts for credit utilization.

Length of credit history

Length of an individual’s credit history is an important part of one’s credit score. The longer the credit history, the better is one’s credit score as there is more information to assess an individual’s creditworthiness. If an individual’s credit history is positive and long, it constitutes to a good credit score.

Credit inquiries

Credit inquiries also make up an important part of one’s credit score. A hard inquiry is when the credit issuer pulls your credit report from a credit bureau to check it. A hard inquiry can take off about 5 points from one’s credit score based on one’s credit profile. So, it is advisable to not apply for many credit products in a short span of time.

Types of credit

Types of credit or a credit mix is a very important part in one’s credit score. It is the balance between secured and unsecured credit that an individual has. A good balance between secured and unsecured forms of credit can improve one’s credit score. Secured credit is a gold loan, auto loan, two-wheeler loan or a secured credit card whereas unsecured credit can include a personal loan, an educational loan or a credit card.

To check your free credit score, click here.