INFOGRAPHIC: 10 Factors That Affect Your Credit Score

3 min read By Mark Alano on November 25, 2020

Your credit score may seem like a mere numeric representation but if you look closer, it has a powerful effect on your financial future.

A good credit score is, in fact, a crucial factor in getting approved for important financial products such as credit cards and loans.

The infographic below shows where you can make some improvements to in order to get your credit score up.

10 Important Factors That Affect Your Credit Score

1. Credit Payment History

Your payment history is the most credible gauge in establishing a perfect credit score as on-time settlements show that you are committed to repaying your financial obligations.

2. Utilization Ratio

This is basically the ratio of how much you use your credit card as compared to your credit limit. The formula to figure out your credit limit is as follow:

Credit card balance/ credit limit x 100

For example, if your credit card balance is P10,000 and your credit card limit is P50,000, your utilization ratio is 20%.

You should avoid maxing out your credit limit or having a too high credit utilization ratio as lenders may take it as a sign that you tend to overextend your finances. They might then feel that you are not good at budgeting and this will increase the risk that you won’t be able to make your repayments.

With this, it is highly suggested that you keep your utilization rate to 30% or less or pay promptly to lessen your balance.

3. Length of credit history

The standard age of your accounts, frequency of applying to new ones and its duration of use.

Furthermore, having a lengthy credit age shows that you are responsible enough in handling a long-term financial agreement.

(Read: Can A Bad Credit History Hurt My Chances Of Finding A Job?)

4. Closing old cards

Cutting ties with banks by discontinuing the use of their cards may look wise, but it could potentially harm your score by lessening both your accessible credit and the average age of your accounts.

We suggest you maintain it for unexpected spending and emergencies.

5. Types of credit card used

If you both have a revolving credit line where you can draw down portions of the allowed loan amount and an installment loan fixed with scheduled settlements, chances are your credit report will be good, as it indicates excellent managing of your financial payables.

6. Credit inquiries

Several inquiries for a new source of cash line, especially within short periods of time, have a great effect in your score as doing so might show unmanageable spending habits which might limit your capacity to pay back loans or credit card bill.

We suggest keeping your applications to a minimum to help your score.

7. Negative information

Unfavorable details on your credit file such as foreclosures, late or missed payments, charge-offs and the likes present as red flags for financial institutions to disapprove your request.

To lessen such unwanted information, make sure to know your financial boundary and avoid going beyond your means.

(Read: The Philippines Has Credit Scoring – What Does This Mean For You?)

8. A sudden increase in your debit/credit ratio

If you noticed a sudden rise in your balances but not from a new credit line, it may negatively affect your score.

Paying debt immediately and be aware of how much credit is extended. Also, make sure to keep your balance as low as possible.

9. Your employment history

If you become jobless and forced to seek assistance such as unemployment benefits from government agencies, be reminded that it may have an adverse effect on your score.

If you are unemployed, you and your creditors have no guarantee that you will have the funds to make repayments.

If you can wait, try and get a job first before applying for financial products.

10. Your monthly utility bills

Most companies do not report monthly payments but once you become delinquent, it will affect your score.

We highly suggest that you always keep track of your bills and make sure that you pay on or before the due date to ensure that your utility bills do not have a negative effect on your credit score.

For newbies, we highly suggest you always refer to this list if you’re starting out to build your ideal credit score. A good credit score can aid you with your financial goals.

To maintain your good credit score, keep making financially responsible decisions. Familiarize yourself with the various factors that can affect your credit score, identify your financial areas of improvement, and take steps to correct bad financial habits.