Factors That Affect A Millennial’s Credit Rating



We all like to live our lives our own way, don’t we? Whether it’s earning, saving, or spending our hard earned money, one thing that rules the minds of most of us Millennials is YOLO. Whether it’s going where we want or buying what we want, we want to do things that make us happy. While there is nothing wrong with all of this, this shifting lifestyle preference of millennials who tend to lean towards spending more, indicates the growing importance of borrowing, whether in the form of loans. or credit cards. Both of these forms of credit have helped Millennials live their lives their own way. However, one financial asset that you must own in order to be able to take out loans and credit cards, especially at a good deal, is a high credit rating. This three-digit digital representation of your creditworthiness actually holds the ability to make or break your eligibility and chances of loan and credit card approval. So let’s take a deeper dive and understand what factors determine this credit score, which will help you take care of these parameters to maintain a good credit rating.

1. Repayment history of credit card bills and loan IMEs

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Your credit report, on the basis of which your credit score is calculated, contains a summary of your current outstanding loans, past credit accounts and existing credit card balances. Whether you’ve taken out a loan for your next trip or bought your favorite gadget on an EMI credit card, remember that paying off your bills and IMEs on time and in full goes a long way in establishing a business. a favorable credit history, which gradually builds up to a strong credit score. . While on the other hand, any irregularity in credit repayments is likely to damage your credit score, as such actions portray you as financially undisciplined.

2. Credit mixing

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The credit mix is ​​the ratio of your unsecured debt (like personal loans and credit cards) to secured debt (like home loans and car loans). Since lenders generally prefer to lend to those who have a balanced credit mix of secured and unsecured loans in their portfolio, credit bureaus also tend to give these borrowers a higher and more favorable rating. While those who have too many unsecured loans can be viewed negatively by the credit bureau and lenders, which can also hurt their credit score. Therefore, whenever you are considering applying for your next loan or credit card, take a look at your existing credit combination and apply for a secured or unsecured form accordingly, depending on what maintains a credit combination. balanced.

Read also: Why Are Millennials Falling Into The Credit Card Debt Trap?

3. Credit utilization rate

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The credit utilization rate is the proportion of your total credit card limit that you use. For example, if you currently have an outstanding credit card amount of Rs 25,000 and your total credit limit is Rs 90,000, your CUR turns out to be close to 27%. Now, since lenders typically have a credit utilization rate of over 30% as a sign of thirst for credit, credit card users who have a CUR above this mark can be considered to have a higher likelihood of getting credit. default on future credit repayment. Therefore, the credit bureaus also tend to lower your credit score by a few points for exceeding the 30% mark, which can cause significant damage to your credit score if done frequently. So, whenever you spend credit card on purchases, bills, travel, etc., make sure that your credit card spending doesn’t exceed 30% of your total credit limit.


4. Credit inquiries

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Have you ever wondered what impact your loan or credit card applications have on your credit score? You would be surprised to know that being reckless in this regard can actually hurt your credit score and your future credit eligibility. Let’s read how it works. Each time you submit a loan or credit card application, the lender retrieves your credit report from the credit bureaus to assess your creditworthiness and past repayment behavior. Such lender initiated credit report requests are listed as credit inquiries on your credit report, each of which may lower your credit score by a few points. And if you end up submitting multiple credit applications to lenders, especially in a short period of time, your credit score may drop. So, it is best to spread your requests over different time periods to avoid bombarding lenders with too many requests, and also try to research the eligibility and offers of various lenders and then focus on submitting the request to the most. potentials only.

5. Co-signed / guaranteed loans

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Another lesser-known aspect that impacts your credit score is co-signed or secured loan accounts. While it is true that helping someone get the loan sanctioned by acting as a co-applicant or guarantor is a good deed, you should be aware of its possible consequences. Co-signing or becoming a guarantor of a loan also makes you responsible for its repayment on time. So if the primary borrower delays or defaults, your credit rating will also be affected, as well as that of the primary borrower. That way, any negligence on the part of someone else can affect your ability to access credit when you need it in the near future. Therefore, it is 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 also impacts your credit score. It depends on a variety of factors, such as the oldest credit you have taken, the newest, and the average age of your credit accounts, including loans and credit cards. Generally, the longer your credit history, the better your credit score, as lenders and bureaus have a longer view of your credit repayment history. This is why it is also often advisable to avoid closing your oldest credit cards and loan accounts (until the end of the term), as this can lower your credit score.

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