Here Are the Factors That Influence Your Personal Credit Score

Have you ever wondered what banks and other lenders use to determine if you will get that loan you applied for or not? Well, most financial institutions use something called a credit score to determine if you qualify for a loan.

A credit score is a number that is calculated from your credit history and is used by banks and other lenders to determine your creditworthiness and the probability of default if granted a loan.

Having a good credit score is important because it improves the chances of getting a loan to buy an apartment, a car or get access to certain services such as medical care.

In Kenya, many people seeking loans in financial institutions don’t know much about credit scores and how to access their credit reports.

What is a good credit score?

For a score with a range between 1-700, a credit score of 600 or above is generally considered good. A score of 700 or above on the same range is considered to be excellent.

Most credit scores fall between 600 and 750. Higher scores represent better credit decisions and can make creditors more confident that one will repay their future debts as agreed.

Factors That Affect a Credit Score

1. Payment history for past loans and credit cards, including the number and severity of late payments.

This is the most important aspect of your score because it shows how you’ve managed your finances, including any late payments.

2. Type, number and age of credit accounts.

Your credit history is important, as it demonstrates how long you’ve been managing your accounts when your last payments were made, and any recent changes.

3. Total debt.

Your debt level determines a good amount of your credit score. Credit scoring calculations look at a few key factors related to your debt.

The amount of overall debt you carry, the ratio of your credit card balances to your credit limit and the relation of your loan balances to the original loan amount.

4. Public records such as bankruptcy.

Your bankruptcy will appear on your credit report for six years, or until you’re discharged if this takes longer. Banks and other lenders look at your credit profile when you apply for credit, so you’ll probably struggle to borrow money while bankrupt

5. The number of inquiries for one’s credit report.

Each time you submit an application that requires a credit check, an inquiry is placed on your credit report showing that you’ve made a credit-based application.

One or two inquiries won’t hurt much, but several inquiries, especially within a short period of time can cost you many points off of your score.

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