Credit scores are primarily the numerical grades that an individual or a business receives from credit reporting agencies, or credit bureaus, based on your credit repayment behaviour. The better your repayment history and your loan portfolio, the better score you will enjoy.
Usually, the ratings are given on a scale of 300 to 900, a score of below 700 is considered weak (and below 650 for secured loans), 700 to 800 is deemed to be good, and a score of 800 and above is deemed to be excellent!
More often than not, the score is calculated based on the below-mentioned aspects:
If you are wondering why all the buzz about credit score, you must know that your score mostly impacts the way your personal finances work, especially if you are looking forward to procuring a loan. Here is why it is crucial for you to maintain a good credit score:
It helps in the swift approval of significant loans such as car loans, Home Loans, Personal Loans and even the Best Free Credit Cards in India.
Now that you know the underlying nuances of credit scores, as well as the significance of these scores, let us take a look at some of the most promising ways which can help you improve your credit score efficiently.
The key to solving any problem is addressing it. The same holds true for your personal finances as well. To understand, just where you stand on the front of credit behaviour, simply get a copy of your reports, from any of the three leading credit bureaus of India. Since every bureau offers at least one report per year free of cost, you can order one copy every four months on an average.
More often than not, banks, Credit Card providers in India and even credit bureaus make mistakes. Hence, it makes sense that you carefully analyse your credit report. If you find any discrepancies in the same, don’t hesitate to report those to the bank or Credit Card company. For all you know, this simple effort on your end can help boost your score by up to 50-100 points.
Since your bill payment history is one of the most crucial factors in the calculation of your credit score, make sure you pay your bills well within the due dates. Even if you have a poor record in this regard, it is never too late to rectify the bit and turn the tables in your favour. To this end, you can either set reminders on your smartphone or computer or simply assign the task to your assistant. This being taken care of, you will be able to see a hike in your score, within 3-4 months’ of time.
When it comes to the interest accrued by credit types, Credit Cards emerge as the clear winner, with most of them being charged at exceptionally high interest rates ranging from 36 to 42%. Hence, you must prioritise paying off your Credit Card bills in full over all other payments. Besides, you must only use your card when you stand a chance to benefit from it, or when it is absolutely needed. Lowering your Credit Card debt and ensuring that you have no outstanding dues is a great way to boost your score.
When you open too many credit accounts, it becomes obvious for credit bureaus to perceive the move as a hustle for getting more debt due to your poor finances. As is evident, this can work against you and may harm your credit score.
At one point or the other, you might fail to make a few bill payments on time. However, you don’t need to sweat about the delay, since most creditors won’t report the same to the agencies. However, delaying the payment beyond 60 days can land you into trouble, as the chances of the default being reported are almost 100%.
The ratio of your spending using the Credit Card, to that of your credit limit is known as credit utilisation ratio or CUR. The lower your CUR, the better impact it has on your credit score since the agencies are lead to believe that you are in control of your finances, and aren’t dependent on the Credit Card for your living expenses. It is therefore recommended that you only use up to 30% of your credit limit.
Thanks to the technological advances, it is now possible for you to take care of your bills without so much as blinking an eye. All you need to do is take the help of an e-wallet or your bank’s autopay or Electronic Clearance Service (ECS) to automate all your monthly payments such as loan equated monthly instalments (EMIs), utility bills, rent, and so on. Since bill payment history forms a significant chunk of the credit score, this simple move may offer you exponential benefits.
When you have two or more Credit Cards under your name, the idea of closing the one that you don’t use much can prove to be tempting. However, you must understand that the longer you hold a Credit Card, the better is your credit score, since this helps the bureau perceive you as a reliable debtor. Moreover, the combined credit limit of two or more cards can help you keep your overall CUR low, thus acting in your benefit. Hence, unless you are shelling out an exorbitant annual fee, it is advisable for you to keep your old cards open for as long as possible.
For anyone with fixed monthly expenses, it is highly recommended to have an emergency fund with as much as six months’ of salary set aside for dealing with unexpected circumstances such as medical emergencies, job switches or lay-offs. Creating this fund will help you stay stable in times of contingency, without the need for applying for short-term loans or building Credit Card debt, thus ensuring that you can maintain a respectable credit score.
We hope that you now know some of the most simple yet truly efficient ways of improving your credit score. So, wait no more before you bring these ways into practice, and revel in the many benefits of a high credit score.
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