Credit Mantra

Understanding the Credit Score Calculation

Credit scores play a crucial role in our financial lives, affecting everything from loan approvals to rental agreements. Understanding how credit scores are calculated is essential for improving your financial health and maintaining a positive credit profile.

A credit score is a three-digit number that represents your creditworthiness, typically ranging from 300 to 900 in India. A score above 750 is generally considered good, and the higher your score, the more favorable the loan terms you may receive.

Factors Affecting Credit Score Calculation

1.Payment History (35%): This is the most significant factor in your credit score. Lenders prioritize on-time payments, as late payments or defaults can severely damage your score. To improve this, set up automatic payments or reminders.

2.Credit Utilization (30%): This ratio measures how much of your available credit you’re using. Ideally, keep your utilization below 30%. Pay off balances in full each month, and consider requesting a credit limit increase to lower your ratio.

3.Length of Credit History (15%): A longer credit history provides more data for lenders to assess your financial behavior. Avoid closing old accounts and only open new ones when necessary.

4.Credit Mix (10%): A diverse credit portfolio, including credit cards and loans, can positively impact your score. If possible, maintain a balance between revolving credit and installment loans.

5.New Credit Inquiries (10%): Each time you apply for credit, a hard inquiry occurs, which can temporarily lower your score. Limit applications to avoid multiple inquiries within a short period.

How Creditmantra Can Help

Creditmantra offers personalized credit analysis, actionable improvement steps, and ongoing monitoring of your credit report. Their tools provide clear guidance on managing payment history and credit utilization effectively. Additionally, Creditmantra helps identify and dispute inaccuracies on your report, ensuring your score reflects your true financial behavior.

By understanding the factors that impact your credit score and utilizing Creditmantra’s expert services, you can take proactive steps toward a healthier credit score and better financial opportunities.