Credit report – Its effect on your personal credit


Lenders check credit score to determine the risk involved in lending money to the borrower. In unsecured loans that do not involve collateral or any security, the credit score of the borrower plays a key role in determining whether or not they are an eligible candidate for the loan. Whether you borrow money from a private moneylender or a reputable bank, you will be asked to submit your credit reports so that the lender can get a clear picture of your credit history.

Read too:

Credit Cards: Types And What You Need To Know About Them

Components of Credit Score that Affects Your Personal Credit

Before we discuss the factors that affect the credit score of a user, you must know that the comprehensive credit reports that are requested from the bureaus can lower your credit ratings. These are also known as hard inquiries. Unlike soft inquiries that do not hurt your credit scores, the hard inquiries that are conducted frequently can bring your credit score down.

When you apply for a loan at a bank or credit union, these companies conduct hard inquiries to get a comprehensive report of your credit history. Know that hard inquiries decline your score temporarily. So, it’s important that you don’t request the comprehensive reports unless it is absolutely needed.

Let’s get to the components of the credit reports that affect your personal credit.

1. Payment History

No lender would want to loan money to someone who can’t be trusted. If you have a bad payment history, there is a very slim chance the lender will be willing to pass your loan application.

Payment history is the most important component of your credit reports. 35% of your credit score is calculated from your payment history. It mainly includes your bill payments, missed or delayed payments, any cases of foreclosure or bankruptcies, and so on. Make sure you pay your utility, credit card statement, and other bills in a timely manner.

2. Your Borrowed Money

How much money you have borrowed and how quickly were you able to repay it with the interest? It’s another important factor that affects your credit records. One common misconception says “credit reports that show zero borrowings have good scores”. Contrary to popular beliefs, lenders want to loan money to those who have borrowed money in the past. The lesser the better. 30% of your credit score is based on the money you owe to the debtors and your repayment plan.

3. Credit History Length

For how long have you been using a credit card? Or, when did you borrow money for the first time? The longer your credit history, the more reliable you are considered. However, long payment history is useful only when you pay your bills on time. Besides, it works only for those who are not in too much debt.

If you have a history of insolvency or foreclosure, then banks and credit card companies will charge you high interest. That’s because you will be a risky borrower to them. They recoup the loans through interest. It is fine if you have recently opened your credit accounts or you don’t have a long credit history. As long as your records are clear with no missed payments, there is nothing to worry about.

4. Mixed Credits

10% of the types of credit accounts you have opened in the past affect your credit scores. This includes credit cards, store accounts, home mortgages, personal loans, installment loans, and more. Mixed credit is recommended only if you can manage to repay the loans or installments on time, as it can boost your credit scores.

Image: Andrey_Popov/


This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept

Privacy & Cookies Policy