What are Credit Scores and how do they affect you

There are a lot of talks going around about credit scores yet many do not know the actual deal about them. Credit scores can be controlled by you. Some myths about credit scores are that they should be high or on-par if you are going for a long-term loan. Many of us also believe that it is only a loan default that can affect your credit score. Well, here are some details to provide you with the right information

Credit Scores are taken only when you start taking loans

Credit companies collect and compile data of every individual, who hold a loan account, has a credit card or has applied for a loan. So whether you have applied for your credit report or not, it exists and can be accessed by the lender.

Six years ago, I had not done my credit card payments. Will it affect my credit score

Late payments and defaults do affect your credit score adversely. There can be a maximum impact on your credit score if you have defaulted recently, the defaults over last 12- 24 months are taken into account for calculating your score. Older defaults can have little impact on your credit score

Take loans for any amount but pay them on time

There are two aspects to borrowing as far as credit scores are concerned – how much credit and type of credit. Also, unsecured loans such as personal loans or too many credit cards also adversely affect your credit report. Further too many enquires for loans will reduce your credit scores.

I make all payments on time and hence it should not bring down my credit score

The percentage of credit actually used of the total credit sanctioned – makes a strong impact on your credit score. This is also termed as Credit utilization ratio. The close you come to using your maximum credit limit, the lower is your credit score. So use your credit cards in rotation and do not stretch any to the limit.

A lender grants me a loan only by looking into my credit score

It is true that credit scores started out as proving the bank information about the credit risk of the borrower, however credit score are used for much more now. The Credit Information Companies Regulation Act (CICRA) permits institutions like banks, insurance companies, telecom companies, broking firms and asset reconstruction companies to access credit information companies’ database.


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