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Your credit score is arguably the most important metric of your financial well being. It determines how likely it is that you will repay the lenders on time if they grant you a credit card or loan. And therefore, a higher credit score means more loan approvals at favourable terms.

However, it is generally observed that most potential borrowers do not possess the blemish-free credit history that financial institutions prefer. And while improving a poor credit report may take a while, it’s best to start doing so as early as possible. 

Credit scoring indeed entails mind-twisting calculations, but the more you understand the mechanisms driving credit reports and credit scores, the more you can take control of your credit profile.

That being said, let’s look at some facts that are often overlooked by borrowers when they’re trying to rebuild their credit score, and how you can be mindful of them in the future.

Settling Accounts for Smaller Amounts

If you’re in the process of repaying a previously requested loan, you must remember that settling accounts for less than the entire amount owed can harm your credit score. The same goes for any other term that you fail to abide by. 

However, the silver lining remains that the negative impact of a settlement is still relatively lesser than that of declaring bankruptcy or not repaying your debt at all. However, it’s to avoid such a situation at all costs to preventing it from reflecting negatively in your credit report. 

Faulty Credit History Remains for a Set Period 

Simply put, late payments tend to linger in your credit report for seven years from the date you miss it. While you can pay a collection account, the delayed repayment will still reflect on your report for the same duration. However, a declaration of bankruptcy can remain on your report for anywhere between seven to ten years.

Any of the anomalies mentioned above on your credit report can lower your credit score, especially since they remain on your report for a few years. However, your primary goal must be to improve your score in every way possible. This starts with taking responsibility for your finances and/or credit card bills and loan installments. 

Other Factors That Affect Your Credit Score

It is a good financial practice to keep a check on your credit score online. This is because along with the score, you’re also prompted about any risks that can negatively affect your credit score.

Some of these key factors include your payment history and credit utilization ratios. They are the two important pillars across several critical credit scoring models, and together constitute over 70% of any arbitrary credit score. This is mainly because past payment performance is usually considered a good predictor of your future behavior. 

Paying Bills on Time Matters

As simple as it sounds, one’s inability to make timely payments on bills is one of the major setbacks faced when approaching lenders for a loan. When lenders review your credit report, they’re most curious about your record when it comes to your payments, and any negative remarks can work against you. 

This doesn’t just include credit card bills or loan installments, but rent, utilities and phone bills as well. Using automated calendar reminders to keep your bill payments on track can positively affect your credit score in the long run. 

Rebuilding Your Credit Score Takes Time

Borrowers must understand that there is no quick fix whatsoever for a bad credit score. Suppose your credit report contains negative remarks, such as a public record item like a declaration of bankruptcy, or late payments, or simply too many inquiries. In that case, your best bet is to focus on consistently paying off all your future bills to improve your score.

While the time duration may vary depending on the reason for negative information, the newly added elements continue to affect your credit scores until a certain point in time, and there is nothing to prevent them from doing so.

If the sole reason for a low credit score is because you have a limited history with credit (thin credit file), then you can apply for a secured credit card, take out a credit builder loan and/or become an authorised user on someone else’s credit card to thicken your credit file.

Healthy Workarounds to Affect Positive Change

As we’ve already suggested, a low credit utilisation ratio (all your credit card balances at any given time divided by your total credit limit) tells lenders you haven’t maxed out your credit cards and therefore, are likely to manage credit well in the future. You can keep your ratio under a favourable mark of 30% just by paying off debt and keeping credit card balances low. Moreover, you can also become an authorised user on another person’s account, given that the third-party exercises credit responsibly.

Another smart technique is to keep unused credit cards open if they do not cost you a fortune in annual fees. This is mainly because closing an account may increase your credit utilisation ratio. 

Also, the process of applying for credit will leave a hard inquiry imprint on your credit report. And since too many hard inquiries can negatively impact your credit score, make sure to steer clear of them. Hard inquiries usually stick around on your credit reports for around two years.


In essence, a credit score is a perfect representation of credit payment patterns over time, with considerable emphasis on your recent information.

More often than not, money lenders will refrain from formulating loans for bad credit holders, and their justification for doing so is fair. The lower your creditworthiness, higher is the risk of the money not being repaid on time or ever. 

On the other hand, a fairly decent credit score is a gift that keeps giving. It can help you qualify for the best interest rates and terms whenever you borrow money, and simultaneously, influence how much you end up paying for your life insurance.

Now that you’ve fairly understood how important credit scores are to your overall financial well-being, it’s only wise to make sure you consistently work towards improving it. 

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