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Credit score is a 3-digit number usually between 300 and 900 . It is created using a complex statistical model that summarizes the past credit information of an individual. The number reflects the probability whether a borrower will pay off the loan in a timely fashion. A high number means you have been paying off your past dues (towards loans or credit cards) regularly and have rarely delayed payment. As a result, lenders have more confidence in extending credit to borrowers with high credit score.

Your credit score is only part of your credit report. Your credit report covers your entire history of dealing with credit (loans and credit cards) including your history of payments (on time or delayed). Your credit history would also show the current status of each credit account – active, closed, delinquent, settled etc. These as well as other details of your credit report form the basis of your credit score.

A high credit score is definitely an asset when it comes to loan and credit card applications. A high credit score (closer to 900) implies that you have good financial discipline and tend to pay off your dues on time. Thus, your chances of being approved for additional credit, in the form of a new loan or credit card, are higher. This is so because lenders perceive borrowers with high score as trustworthy. They notice the financial discipline of applicants and accordingly decide whether to extend new credit or not.

A credit inquiry is a request by an institution for Credit Report Information from a credit-reporting agency. They are classified as either a hard inquiry or a soft inquiry.

Hard inquiries (also known as ‘hard pulls’) generally occur when a financial institution, such as a lender or credit card issuer, checks your credit when making a lending decision. They commonly take place when you apply for a loan or a credit card.

Soft inquiries (also known as ‘soft pulls’) typically occur when a person or company checks your credit as part of a background check.

Your credit score is calculated taking into consideration several factors such as your credit history, repayment behavior, and credit type, among others.

These are the main factors that impact your credit score:

Payment History: Your payment history contains all the information about how you have maintained the credit in the past. Chances of loan approval get reduces if you are having any missing, delaying or incomplete payments over your credit card and loan EMIs as it affects your score negatively.

Credit utilization ratio: Credit utilization ratio is calculated as the ratio of your borrowed amount with your total available credit. Having the credit utilization ratio greater than 40% indicates the burden of increased repayment that can negatively affect your score.

Credit mix: Having a variety of loans is also one more factor lenders consider. Maintaining a balanced mix of secured loans and unsecured loans have a better positive impact on your credit score.

Credit Age: The age of your credit is calculated through the length of your credit history to check on how long you have been accessing credit. Having a longer experience in handling credit leads to better score.

Hard inquiries: The prospective lenders access your credit report whenever you have applied for credit card or a loan from the credit bureaus. It is reflected in your credit report as "hard inquiry". Hence, submitting multiple requests for credit within a short span has an adverse affect on your credit score.