5 Important Tips to Improve Your Credit Score
A credit score is an ominous term that makes financially aware individuals squirm in their seats. Having a strong credit score of 750 and above is crucial to your financial well-being. Note that the first credit info company, the CIBIL, was established in 2000 and since then has been one of the most renowned credit agencies. CIBIL accumulates all credit data of individuals sent across by banks and NBFCs or HFCs. Through this data, they score your credit history in the range of between 300 and 900, with a credit score of over 750 being the healthiest. The CIBIL score acts as a measure of your credibility and is used by the banks and lenders when you apply for credit cards and loans.
So, what must you do if your credit score is low? With some effort and time, you can ameliorate your credit score using the methods listed below:
Table of Contents
Form a credit history
A common myth amongst individuals is that holding zero credit whatsoever ensures an excellent credit score. However, the reality is a whopping 30 percent of your credit score is based on your credit history alone. A credit history check is of great importance when it is about loan approvals or availing of credit. It is a wonderful idea to make companionship with credit and utilize the same judiciously.
Repay your outstanding dues by the due date
Timely payment of the loan dues and credit card bills ensures a good credit history. It is a sign that you repay your dues by the due date and avoid payment defaults. In case you hold multiple credit cards, it is wise not to close any of them. It is a good way to include more data in your credit history to form a positive one. This said, you could keep multiple credit cards just if you can pay the bills within the due date and maintain a minimum balance on the cards. Your whole credit exposure forms 25 percent of your credit score.
The next point you must note is to repay your credit card dues in full. When the credit card statement is generated, consumers usually are provided with 2 choices – to pay the whole amount in just one go or repay the minimum amount that is determined by the bank. While you might be tempted to pay the minimum amount due on a credit card, note that the rest amount is considered an overdue amount, which attracts finance charges and can impact your credit score.
Apply for a loan just when you need it
Hoarding up loans is not going to do any good to you. It just shows that you are credit hungry and reflects badly on your credit history. It is always wise to keep a note of the number of loan applications submitted. Ensure to keep it minimal. This is because submitting a lot of loan applications lowers your trust of lenders upon you, which results in a reduced credit score as you get projected as a credit-hungry individual.
Remember to keep a healthy mix of credit. This means you must aim for a balanced credit mix of unsecured and secured loans in the form of auto loans, personal loans, home loans, etc., with extremely fewer unsecured credit options. The next good idea is to avail a secured card that can be availed against your cash deposit, like a fixed deposit that serves as security or collateral. It is also a great avenue to ameliorate your score.
Overuse of the available credit
Overuse of the whole credit limit available to you periodically is looked upon as a red flag. This indicates you must not spend more than your repayment capacity. Doing so may make you default on your credit card dues, which indirectly impacts your credit score negatively.
Avoid impulse expenses
An old but very important rule is you always must think before spending your money. Avoid swiping your credit card to purchase any cool gadget that just came up on the market. Ensure it takes you time to think and plan out your expenses. While it is crucial to ameliorate your credit score, note that it is a steady and slow procedure. It will take years’ worth of effort on average to view the result of your report. Ensuring a strong credit score and history can assist ease all your financial worries and is worth the time and effort.
Ending note
Forming a strong credit score is the same as forming a strong reputation. Both need a huge amount of patience and work. Loans are an important part of any modern man’s life, and forming a pragmatic credit history is of utmost importance for availing of a big-ticket loan. If you can maintain a strong credit score of 750 and above successfully, your financial life will be highly stable as you will be able to afford loans at a lower interest rate and processing fees.
However, the disturbing part is your credit score can dip anytime quickly for the smallest reasons. This can be extremely disheartening if you have a lower credit score when opening your report. But you must not be discouraged as you still can work extremely hard! Wondering how? Kindly go through the above-listed points; these are the best ways you can work towards a healthy credit score.
Also, you can check your credit score online for free by visiting any of the online lending platforms or credit bureaus. Online lending platforms promise to provide CIBIL score check online free reports every month. However, all 4 credit bureaus assure to provide one free credit report each for free per year. If you want to avail of more than 1 credit report from any of the bureaus, you will have to pay a certain fee for the credit report. Ensure to check your credit report every 3 months. Doing so will help you keep a thorough check on your credit score and, in case of any score depletion, will impel you to work towards a better score.