How to Improve Credit Score
How to improve/Increase Credit Score
Lenders look at it first when you apply for a loan or credit card. It helps them determine whether you can repay the loan on time. Therefore, keeping a good credit score is critical. A credit score determines your repayment capacity when you are availing of a loan. A good score means you have a high chance of receiving a loan/credit. All it takes is making payments on time, checking your reports frequently, paying off existing credit card debt, and keeping your credit utilisation below 30%.
If you wish to improve your credit score to avail of a new loan or credit card, these are the steps you may take.
1. Regular Checking of Credit Reports
Credit reports to have many uses, and the prime ones are:
- To know where defaults or delayed payments exist that have brought down your score while getting a loan or credit card.
- It will tell you the information recorded in the credit report to fix the credit score. Suppose you notice negative information in the form of defaults or payments mentioned on the report. In that case, you can always approach a bank and bureau to correct the situation.
2. Constant Correcting of Errors
You can report errors in credit reports by visiting the official websites of the credit score bureaus. Once you review your credit report, you can determine the transaction you disagree with or identify the error. You must respond to and resolve the disagreements within 30 days.
3. Careful Noticing of Your Credit Utilisation Ratio
Always ensure you only use your credit card for some transactions. Keep your credit utilisation ratio at 30% or less to see a positive impact on your credit score.
4. Cease Applying for Credit on Rejection
The report will record information in your credit report if you have applied for a loan or credit card and if they reject your application. Go and apply to another bank immediately. They may reject your application based on your poor score and previous rejection. In such circumstances, it is advisable not to apply and wait for the score to improve.
5. Low Maintaining of Application Frequency
Banks get credit reports from the credit score agency every time you apply for credit. They will inquire about the report. A bank inquiry can cause your score to drop after each request for your report. So you must exhibit credit-hungry behaviour to receive bank loans and credit cards.
6. Reminder to Pay Your Loans
If you have been postponing payments on any debts, you should make it a priority to start being on time with your payments. You must pay if you are having difficulty with your existing EMI. You might seek your bank for assistance in restructuring the debt to make it more manageable.
7. Timely Paying Off Your Credit Cards
The best thing to do about credit is to stay under the credit card’s limit.
You should also ensure that you are paying more than just the minimum amount owed on your credit cards. You must repay the entire amount or at least a significant portion.
8. Zero Settlement on Credit Cards and Loans
People often opt to settle a credit card or loan. To do so, they approach banks and ask for deals where they could close the debt for an amount lower than the actual amount due. While banks sometimes entertain such requests, the settlement reflects on the credit report. It will harm the score and the bank’s willingness to offer fresh credit.
9. Limit on Borrowing Kept to a Minimum
Suppose you apply for several loans or are always near your credit card limit. In that case, your score will likely come down since such activities display credit-hungry behaviour. The best thing to do is only to take a loan if necessary and maintain your credit limits on the cards.
10. Always Getting Mixed Types of Credits
There are two types of loans. They are secured and unsecured loans. If you borrow several unsecured loans, banks see that as a negative and might incline towards declining your loans. You can avail of unsecured loans, like personal or credit cards, and secured loans, like car or home loans.
11. Carefully Eliminating Joint Applications
Joint applications will make you suffer without your knowledge. If you are a joint applicant for someone else’s loan, their defaults will affect you too. You will also lose out on your credit score, which will reflect in your report. It is better to avoid a joint application to ensure that you pay off your loans and cards on time.
While it is true that a low credit score can be detrimental to your future credit needs, the situation is not hopeless. You should remember that the scores take a few months to improve, so you’ll need to buckle up for a while before you see any change.
12. Selective Opting for Short and Long-Term Credit
Credits are beneficial since a person who has never had any credit will have a lower credit score. And it becomes difficult for those people to get loans. You can improve your credit history and increase your credit score by taking up loans that include a mix of secured and personal loans.
Do late payments and high utilisation of credit limits hurt your score?
Your credit score will suffer if you have missed a loan payment. A higher utilisation pattern equals more repayments and negatively affects your score.
Can I raise my credit score?
A credit score is a snapshot of your entire credit history. It's a pattern which implies that if you've previously failed on a loan, even paying off a few credit card bills on time won't significantly improve your score.
Instead, you'll need to get into the habit of making payments on time, every time, taking out more secured loans than unsecured loans, and never missing a credit card payment.
Your credit score will improve as you continue to pay off your debts.
What can I do to raise my credit score?
Payment of EMIs on time results in a clean credit history. Make entire credit card payments rather than the minimum payment. If all else fails, make the bare minimum payment. Remember that:
- Credit card debt refers to revolving credit, and it helps you create a strong credit score faster than a loan.
- If your utilisation of your credit limit has been low, it will positively affect your score.
- Prompt repayments help boost your score.
- Reviewing your credit history enables you to gauge your financial health.
How do more personal (unsecured) loans affect your score?
Unsecured loans negatively affect the score since they have a higher interest rate than a car or home loans and are more likely to result in defaults. What if you are 'credit hungry?'
Suppose you urgently need moolah and apply for credit from several lenders. In that instance, your credit score will suffer since lenders will be reluctant to make a new loan while assessing your creditworthiness.