Things That Impact Millennials' Credit Score That They Don't Even Know About

We all love to live our life in our own unique way, right? Whether its about earning, saving or spending our hard earned money, one thing that rules most of us millennials' minds is the YOLO. From going wherever we want, to buying whatever we desire, we want to do things that makes us happy. While there's no harm in all this, this changing lifestyle preference of millennials that tends to be bending towards spending more, points towards the rising importance of borrowing, whether in the form of loans or credit cards. These two forms of credit have been instrumental in assisting millennials live life their own way. However, one financial asset that you must possess for being eligible to take loans and credit cards, especially at good deals, is a high credit score. This three digit numerical representation of your creditworthiness in fact holds the ability to make or break your loan and credit card eligibility and approval chances. So let's dig deeper and understand what factors determine this credit score, which will help you in taking care of these parameters towards maintenance of a good credit score.

1. Repayment history of credit card bills and loan EMIs

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Your credit report, based on which your credit score is computed, contains the summary of your current outstanding loans, past credit accounts and existing credit card balances. Whether you have taken a loan for your next trip or purchased your favourite gadget on credit card EMI, remember that repaying your bills and EMIs timely and in full contributes a lot towards building a favourable credit history, which gradually builds up to a strong credit score. Whereas on the flip side, any irregularity in credit repayments is capable of damaging your credit score, as such actions depict you as financially undisciplined.

2. Credit mix

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Credit mix is the ratio of your unsecured (like personal loans and credit card) and secured debt (like home loans and car loans). As lenders usually prefer lending to those with a balanced credit mix of secured and unsecured loans in their portfolio, credit bureaus too tend to score such borrowers higher and more favourably. Whereas those with too many unsecured loans may be perceived negatively by the credit bureau and lenders, which may harm their credit score as well. Hence, whenever you think of applying for your next loan or credit card, have a look at your existing credit mix and accordingly apply for a secured or unsecured form, whichever helps to maintain a a balanced credit mix.

Also Read: Why Do Millennials Fall Into Credit Card Debt Trap?

3. Credit utilisation ratio

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Credit utilization ratio is the proportion of your total credit card limit utilized by you. For instance, if you have outstanding credit card amount of currently Rs 25,000 and your total credit limit is Rs 90,000, your CUR turns out to be close to 27%. Now, as lenders generally credit utilisation ratio of over 30% as a sign of credit hungriness, those credit card users who possess a CUR above this mark can be viewed as having higher likelihood of defaulting in future credit repayments. Consequently, credit bureaus too tend to pull down your credit score by some points on breaching this 30% mark,which can cause significant damage to your credit score if done frequently. So, whenever you make your credit card spends for shopping, bills, trip etc, ensure that your credit card spends do not go beyond 30% of your total credit limit.

4. Credit enquiries

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Ever wondered how your loan or credit card applications impact your credit score? You would be surprised to know that being reckless in this aspect can in fact harm your credit score and future credit eligibility. Lets read how it works. Each time you submit a loan or credit card application, the lender fetches your credit report from the credit bureaus in order to evaluate your creditworthiness and past repayment behaviour. Such lender initiated credit report requests are listed as credit enquiries in your credit report, each of which can reduce your credit score by few points. And in case you end up submitting multiple credit applications to lenders, especially in a short span of time, your credit score can suffer a dip. So, its better to spread out your applications across different time periods to avoid bombarding lenders with too many applications, and also try to research about eligibility and offers of various lenders and then zero in on submitting application to the most prospective ones only.

5. Co-signed/ guaranteed loans

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Another lesser known aspect that impacts your credit score, is the co-signed or guaranteed loan accounts. While its true that helping someone get the loan sanction by stepping in as a co applicant or guarantor is a good deed, you must be aware of its possible consequences. Co-signing or becoming guarantor for a loan makes you equally liable for its timely repayment. So, if the primary borrower delays or defaults, your credit score would be impacted too, along with that of the primary borrower. This way, any negligence on someone else¡¯s part can affect your ability to access credit when you need it in near future. Hence, it's advisable to regularly review the repayment activities of your co-signed or guaranteed loan accounts and ensure timely payments.

6. Age of credit history

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Yes, you read that right. Your credit history also has an age, which in fact impacts your credit score as well. It depends on various factors, like the oldest credit you took, the newest one and the average age of your credit accounts, including both loans and credit cards. Generally, the longer your credit history, the better it is for your credit score, as lenders and bureaus have a longer view of your credit repayment history. That's why its also often advised to avoid closing your oldest credit cards and loan accounts (until tenure completed), as doing so can lower your credit score.

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