February 26, 2024
Abhay Bhutada

Your credit score is essentially a numeric representation of your creditworthiness. The higher your score, the more likely you are to be approved for credit and receive better terms on loans and credit cards. Conversely, a low credit score can hinder your financial prospects. Several factors contribute to the calculation of your credit score, and understanding these elements is crucial to maintaining or improving your creditworthiness. Let’s delve into the factors that significantly influence your credit score:

Credit Utilization

This is the ratio of your credit card balances to their credit limits. Lenders assess this to determine if you’re using too much of your available credit. To maintain a healthy credit score, it’s advisable to keep your credit utilization below 30%. High credit utilization can indicate financial stress, which may adversely affect your score.

Payment History

One of the most critical factors impacting your credit score is your payment history. Lenders want to know if you are paying back your debts responsibly. This is because timely payments on credit cards, loans, and bills are essential to maintain a high credit score. Abhay Bhutada, MD of Poonawalla says that your repayment history has a significant weightage in a credit report. Late payments of defaults can potentially reduce your credit score.

It’s not an issue if you don’t have a payment history. Vivek Chopra, COO of Retail Business at Tata Capital, says that even if you are a new borrower, your score can grow and get better over time. It is recommended that you make your payments on time, limit loan inquiries, report errors, try to use a mix of credit options and more. These other factors will make up for your lack of payment history.

Types of Credit

Diversity in your credit profile is a crucial element that underscores your creditworthiness. Lenders tend to favor a well-rounded mix of credit types, such as credit cards, installment loans, and mortgages. Successfully managing this variety demonstrates your versatility in handling different financial responsibilities responsibly, and this can boost your credit score.

However, it’s important to remember that while diversity is favorable, it should not lead to overextending your credit. Prudent management of these different types of credit, coupled with regular, on-time payments, will further strengthen your financial reputation and enhance your creditworthiness.

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Public Records

Bankruptcies, tax liens, and court-ordered collections, are a significant component of your credit report. These records are usually a matter of public record and can hinder your access to credit and loans with favorable terms. Bankruptcies and tax liens, in particular, can linger on your credit report for several years. Addressing and resolving these records, rebuilding your credit thereafter, and vigilantly monitoring for inaccuracies are essential strategies to mitigate their adverse effects and maintain a strong financial profile.

New Credit Inquiries

Every time you apply for new credit, a hard inquiry is recorded on your credit report. A pattern of multiple hard inquiries in a short period may raise concerns among potential lenders. This could be interpreted as a sign that you’re actively seeking additional credit and possibly facing financial strain. Try to limit the number of new credit inquiries, especially when you’re planning to apply for a significant loan like a mortgage. By doing so, you can help maintain the strength of your credit score, ensuring you’re in the best position to secure favorable loan terms and interest rates when the time comes.


Maintaining a good credit score is not only about managing these factors but also about vigilantly monitoring your credit report for inaccuracies. Abhay Bhutada, MD of Poonawalla Fincorp says that people should review their credit report periodically to check for any discrepancies. If an error is noticed, then it should quickly be reported to the credit bureau in question. By paying attention to your payment history, credit utilization, credit history length, credit diversity, and avoiding negative events, you can maintain a healthy credit score and open doors to various financial opportunities.

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