A credit score is the three-digit number, from 300 – 900 where 300 is considered as the lowest score and 900 is considered as highest. Transunion CIBIL, Experian, Equifax and CRIF Highmark are the credit bureaus that offer the score. A credit score is determined by five factors.

Payment history
How consistent and responsible the individual is in paying the credits he has taken determines the payment history. Credits are either the loans that are taken from the financial institutions or the credit cards which are active. Payment history takes up to 35% in any credit score.

The amount owed
Amount owed is the total amount that has been taken as credit from the banks or non-banking finance companies. This is the second major factor that comprises a credit score. It usually has 30% weightage.

Length of credit history
The duration of the active accounts of the credit is the next factor. The longer the duration, more will be the score. Individuals are advised not to close the older accounts of credit cards, especially even when there are defaults, so as to keep the score intact and not letting it slip to a low CIBIL score. It gets up to 15% of overall weightage.

Credit mix
A balanced mix of anything is important. There are four types of credits, two in two pairs. Fixed and recurring line of credit. A secured and unsecured line of credit. Loans are the fixed line of credit where the EMI amount or the repayment amount is the same. Credit cards on the other side are the revolving line of credit where the amount used is repaid and one can again use that amount. The secured type of credit is a home loan or a motor loan or a secured credit card where there is some security against the credit taken. Usually, credit cards and personal loans are examples of the unsecured line of credit where the credit which is given by the lender does not have security. A good credit mix is required to have a healthy score and that takes upto 10% of the score.

New accounts
Opening a new account always adds value to the score. However, multiple credit accounts that are enquired or opened in a very short span of time give the impression that the borrower is in need of a lot of cash, labelling it as credit hungry behaviour. This is 10% of the score.

These five parameters are considered by the bureaus based on the information they get from financial institutes. All the bureaus have their individual algorithms that calculate the score. And these may vary by 5% over each parameter. The individual has to make sure the score is always maintained at or above the 750-mark.

Source: Tax Guru