Good scores and bad scores are not just terms used to describe your school report card. Creditors use credit scores to describe your creditworthiness.

Before you apply for any kind of a loan, it is imperative to check your credit score and know about the various factors that affect it. While most people know the importance of a good credit score, many are not aware of the factors that affect credit scores.

While some factors are evident, others are not. Read on to find out about the not-so-evident factors that can potentially mess up your credit score.

1. A high credit utilization ratio

   A credit utilization limit is the ratio of your outstanding balances to the borrowing limit. If this ratio is high, it has a negative impact on your credit score. Therefore, to maintain a good CIBIL score, you need to keep your credit utilization limit between 20-30%.

2. Making too many loan inquiries

   Any banks or financial institutions always go through your credit history before approving your loan or credit application. Multiple loan inquires can adversely affect your credit score because lenders then judge your creditworthiness on the basis of the hunger or desperation you have shown towards getting a loan or credit.

3. Paying late

   If you want a good credit score, you cannot afford to miss EMI or credit card payments, not even a single one. Payment history has a strong impact on the credit score. The more payments you miss, the more your credit score will dip.

4. Applying for too many credit cards at once

   Applying for too many credit cards in a short time period can drastically lower your credit score as it would reduce the length of credit history, plus it will add too many inquiries to your credit report.

5. Settling your debt

   A settled account can hurt your credit score. A settled account means that the lender or bank has agreed to settle the account on an amount much lesser than you owed. So, it’s definitely a negative remark on your credit score.

6. Not having a credit mix in your report

   A credit mix refers to the types of accounts that appear in your credit report. Having a mix of credit account types has a positive effect on your credit score. You are showing your lenders that you are responsible and can manage different types of credit accounts and their payments successfully.

7. Closing your old credit cards

   Closing your old credit cards seems like a responsible behaviour, but it can actually hurt your credit score. Keeping your old credit cards open lengthens your credit history.

For a good credit score, it is imperative that you have a good credit mix, keep outstanding credit balances low and check your credit score regularly. A good credit score opens up a lot of credit opportunities for you.

If your credit score is not ideal, don’t that it lightly. It is important that you know how to improve your credit score.