Need to improve credit score? Well, I’m going to help you with that.
The truth is that a lot of people are still oblivious about the exact role credit score plays in their financial goals.
You should not ignore your credit score at any given point of time, as lenders take it as an important factor when taking into consideration your loan application.
What Is A Good Credit Score?
A credit score is a 3-digit number between the ranges of 300 and 900. When you submit a loan or a credit card application, your lender (bank or any other finance company) checks your credit score to determine whether or not you have the ability to pay off the credit.
Generally, a credit score of 700 or above is considered good while a score of 800 or above is considered excellent.
It must be noted that even if you have a bad or good credit score, you still have to take certain measures to maintain as well as improve credit score.
Tips To Improve Credit Score
As your credit score is linked to your PAN card, building a credit history and thereby increasing your credit score does not take place overnight. You need to have patience and work hard to achieve your goal. On that note, let’s take a look at some of the simple tips to improve credit score:
1. Review your credit report
First and foremost, you need to get into the habit of checking your credit report regularly. Checking your credit report periodically helps you understand the areas where you need to work on.
A credit report offers you detailed information about your credit accounts as well as about the total debts that you have to clear off.
Another reason to review your credit report periodically is to look out for any factual errors, or duplication of credit accounts.
As per the mandate from the RBI since 2017, credit bureaus have to offer one free credit report to individuals in one calendar year. Moreover, you can also check your credit score for free through multiple mobile apps these days like the BankBazaar Mobile App, which is indeed the most recommended and secured way of getting your credit report.
2. Timely bill payment is the key
One of the biggest factors that affect your credit score is your repayment history.
It accounts for 35% of your credit score. Making on the bills payments time should be your utmost priority, as late payment of bills hampers your credit score.
Never miss a bill payment date, as your credit score will take a hit. In addition, you have to shell out more money for late payment charges and interest. Being consistent in your bill payments suggests that you are a reliable borrower and thereby posses a lower rate of turning a defaulter.
There are several ways in which you can pay bills on time. For starters, you can give activate standing instructions to your bank to auto-debit your credit card bill before the due date.
3. Avoid closing old credit card accounts
Your old credit cards might have a good credit history as well as consistent repayment behavior.
If you close your old credit card accounts, you lose out on the credit history thereby bringing down your credit score.
Therefore, even if you are not using your old credit card, leave it open for as long as possible, as it increases the age of your credit history.
The age of your credit history accounts for 15% of your credit score.
Along with lowering your credit history, closing old credit accounts can also lower your available total credit and increase your credit utilization ratio.
4. Pay off any pending debt
If you have any pending bills or EMIs that have not been paid, clear them off at the earliest.
Any pending payment can still have a negative effect on your credit score.
Having unpaid bills for a long time suggests that you are not prompt regarding your payments. Such irresponsible repayment behavior will be marked down by lenders at the time of approving your credit card or personal loan application.
Therefore, even if the dues are pending for a long time, go ahead and pay them off as it will only help your credit score.
5. Have a diversified credit mix
It helps your credit score if you have mixed types of credit.
There are two types of credit – secured and unsecured. This essentially means it is good to have a car or home loan as well as a credit card.
The type of your debt accounts for 10% of your total credit score.
When you have a good balance of mixed credit in your credit report, the lenders will know that you have experience in handling both the type of credits.
However, this does not mean that you should take a loan when you don’t need it. You should just keep in mind to balance out your credit scores.
6. Don’t open multiple credit accounts at the same time
You should be extra careful and make sure not to open multiple credit accounts at the same time.
Instead, you can apply for credit at decent intervals. Each time you inquire about a loan or credit card, an inquiry is placed on your credit report. Such inquiries are called hard inquiries.
Remember that multiple hard inquiries will bring your credit score down.
Credit inquiries account for 10% of your total credit score.
Also, frequent credit inquiries make you look as credit hungry and thereby affect your credit or loan application.
Ideally, you should time your credit application to avoid
7. Maintain a low credit utilization ratio
Credit utilization is the percentage of the credit limit which is being used by a customer.
It is the second biggest factor that affects your credit score.
The total amount due accounts for 30% of your credit score.
One of the easiest ways to maintain a low credit utilization ratio is to pay the full amount of all your bills/EMIs.
Maintaining a lower the credit utilization suggests that you are using the credit in a responsible manner.
One of the fastest ways to maintain a low credit utilization ratio is to request a higher credit limit on your credit card. You can also apply for a new credit card to reduce your credit utilization ratio.
In the end, you should also keep a tab on your spending habits if you are struggling to maintain a low credit utilization ratio.
Hope all the aforementioned points will help you improve credit score and pave the way for an easier credit card or loan approval.