Ranging between 300 and 900, Credit Score is a numerical expression of an individual’s creditworthiness. Read on to know how it can be maintained.
A good Credit Score can help you arrange finances in times of emergencies. If you plan to buy your dream house or car and want to approach a bank or financial institution for loans, then a good Credit Score would come handy. However, a poor Credit Score could lead to loan rejection or having to pay a high-interest rate. Hence a good Credit Score is a must.
What Is A Credit Score?
It is a numerical expression of an individual’s creditworthiness, ranging between 300 and 900. It is determined through an analysis of an individual’s credit files. Licensed by the Reserve Bank of India, two well-known credit-rating agencies in India are Experian and CIBIL. Today, the best interest rates are reserved for loan applicants with scores of 750 or more. But having a poor score is not a calamity. Let’s take a look at how it can be remedied.
Improving Your Credit Score
Timely Repayment Matters
One of the main factors impacting your Credit Score is your repayment history. If you have a loan or Credit Card, and if you’ve been late in your EMIs and dues settlement, you will earn a poor score. While late payments are a lesser problem, defaults and loan settlements (where you “settle” your loan by paying a fraction of your balance) will dent your credit history. Reach out to your lender for any pending payments and settle them before you’re branded a defaulter.
Pay Your Credit Bills On Time
It is important to settle your Credit Card bills on time and in full. Unpaid bills and Credit Card balances reflect in your credit history, bringing down your score. Late card payments not just impact your credit history, you also end up paying a hefty interest rate. Credit Card balances—with interest rates ranging from 24 to 40%—are the most expensive form of debt. Hence, always settle your card dues before the due date, ideally through an ECS mandate with your bank account to automatically settle your dues on time.
Watch Your Credit Utilisation: Let’s say you have a card spending limit of Rs. 1,00,000. Every month, you spend Rs. 50,000. Even if you repay your balance on time, your credit use is on the higher side – 50% in this case. A high credit use ratio has a high impact on your score. You should aim to keep it at around 20-30% at best, and split your card spending between multiple Credit and Debit Cards. If you have a low spending limit, ask your card provider for more, so your credit use ratio lowers proportionately.
Maintain Old Credit Card & Loan Accounts
It’s good to have long-term credit accounts. It shows you’ve taken care of those accounts well over a long period of time by repaying your dues in a timely manner. This reflects positively on your Credit Score. So if you have a Credit Card that you want to ditch, don’t. Think of how you can keep it because the longer you keep it, the better it makes you look, financially speaking.
Don’t Apply For Loans & Credit Cards Frequently
Each time you apply for a new loan, store credit EMI, or Credit Card account, the lender checks your Credit Score. Too many recent checks reflect badly on your Credit Score since it makes you look cred-hungry. This will impact your Credit Score moderately. So avoid applying for too many credit products unless you really need them. When in actual need of a loan, short-list your options thoughtfully instead of applying wholesale with every lender in the market. Also, don’t wait till you apply for a loan to know what your Credit Score is. Check your Credit Score for free today.
Check For Errors
It may be possible that your score is low due to errors on your credit report. The report is compiled with data shared by your lender. It may be possible that incorrect data has been shared, and this is bringing down your Credit Score. For example, you have been accidentally assigned the PAN number of a known defaulter. It’s important to make periodic checks of your credit report. If errors are detected, they should be highlighted to the credit information agency as per their reporting process.
Don’t Avoid Credit
For you to have a Credit Score and history, you must maintain a loan or Credit Card. If you avoid them, you won’t have a history. Don’t be afraid to borrow. Start off with a Credit Card taken with a bank FD as security, and make small transactions with it. Assign an ECS mandate to make sure your credit card gets repaid automatically.
Having a poor Credit Score is no calamity. You can be pro-active about it. Borrow thoughtfully and repay punctually, and this will have an immediate impact on your Credit Score.