Your credit score is the mirror of whether you have a history of financial stability and responsible credit management. Here are some of the top 5 factors that affect your credit score:

Your payment history

when someone lends you money, the biggest question on their mind is whether you will return it on time or not. Since lenders use credit score as a measure to determine your creditworthiness, it becomes the most important component of your credit score. If your credit score is high, you can be trusted to repay your loans on time. Your payment history includes details such as:

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Have you paid credit card bills and loans on time?

The timing of your credit card bill payments is very important. Every time you make a late payment, your credit score is cut. In case of late payment, how late were you (30 days/60 days/90+ days)? The later you are, the worse your credit score will be.

Have you defaulted on any payments? 

This is a red signal to potential lenders that you may not pay your dues on time. Public records such as charge-offs, debt settlements, bankruptcies, foreclosures, lawsuits, wage garnishments or attachments, liens, or public judgments can severely damage your credit report and credit score. You can rebuild your credit score by paying your dues on time. 

Credit utilization ratio/debts owed

Your credit score is made of various factors. For example, you might be making timely payments for all your dues, but what if you are about to reach a breaking point? Hence, your credit utilization ratio is another important point that determines your creditworthiness. The credit utilization ratio shows how much debt you have compared to your available credit limits. So, less is better when it comes to the credit utilization ratio. For example, if your credit card limit is 5 lakhs, try to limit your credit utilization ratio to less than 30%. However, don't assume that owing nothing can be better either. You should use your credit a little bit and make your payments on time to show the lenders that if you borrow money, you are responsible and financially stable enough to pay it back.

Tenure of credit history

The age of your oldest account and the age of your new accounts are taken into consideration to find the average age of all your accounts. Having a long credit history can help prospective lenders see the history of your financial stability and responsible credit management. But make sure late payments and other negative items do not mar your credit history. Having a short credit history would do no harm as long as you pay your bills/dues on time and don't owe too much. 

New credit

The number of new credit accounts you have also affects your credit score. Your credit report includes information such as - how many new accounts you have applied for recently and the timeline of the latest accounts you have opened. Whenever you apply for a new line of credit (such as credit cards, education loans, home loans, personal loans, car loans, etc.), lenders make a hard inquiry to check your credit information. The hard inquiries can cause a small and temporary drop in your credit score. Because it's assumed that you have a high percentage of credit accounts and you could represent a greater credit risk. It has been seen that people who are experiencing cash flow problems apply for too many new debts, which they may or may not pay back on time.

Credit mix 

Credit mix - the types of credit you own, such as credit cards, store accounts, instalments, loans, mortgages, etc., also constitute an important factor that affects your credit score. The credit score is also given after looking at how many total accounts you have. However, the percentage of credit mix in determining the credit score is very small, so you should not worry if you don't have accounts in each of these categories. Also, do not open too many new accounts just to increase your mix of credit types, as it would decrease the average age of your credit history and therefore, your credit score may also see a drop.

Conclusion

Regularly checking your credit reports is one way to keep track of your credit accounts and know what information is being reported by your lenders and creditors — and factored into your credit scores. You can get free weekly credit reports from each of the three nationwide credit agencies (Equifax®, Experian® and TransUnion®) at www.annualcreditreport.com. You can also create an account to get multiple credit reports each year and a monthly Vantage Score 3.0 credit score. A Vantage Score is one of many types of credit scores.