Is the credit score just a number? How important is it?
Or, is it important enough to make a dramatic effect on the life of an individual?
How much of an influence can a credit score really have in your financial life?
Well, a lot of such questions may bombard your mind, when you think about the often spelled word-‘credit score’. Don’t worry; we are here to clear all your doubts. We will also tell you some easy ways to improve your credit score.
What is a credit score?
A credit score is an essential indicator from which a bank evaluates your creditworthiness when you apply for a personal loan (such as SBI personal loan, HDFC personal loan or ICICI personal loan, etc). Good credit scores can do a world of good to you as it will convey a better credit risk about you to your lenders. That’s why it is imperative that you should keep an eye on your credit score and find out ways to improve the same.
The credit score prepared by CIBIL (Credit Information Bureau India Limited) is widely used by banks/NBFCs to evaluate the eligibility of a borrower for getting the best personal loan. This 3 digit number can summarize the entire credit history of a borrower and is based on information available monthly from different banks/NBFCs.
Why is it essential to have a good credit score?
The higher your credit score is, the more creditworthy you will be to lenders. Your credit score will determine where you stand in the eyes of the lenders as the interest rates you will be offered for loans/mortgages will heavily depend on it. Also, things like your credit card limits and other offers you are likely to get from lenders and banks are also affected a big way by your credit score.
If you have a bad credit score, you may not be able to get the best personal loan approved. Even if your loan application gets approved somehow, you may be asked to pay higher personal loan interest rates and may be offered unfavorable terms and conditions when you apply for a personal loan, as compared to those borrowers with excellent credit scores.
10 Things You Can Do Today to Improve Your Credit Score
1. Check your credit reports for accuracy
Credit reports can have mistakes and checking these reports is the first significant step towards improving your credit score. Get free copies of credit reports from the major credit bureaus like CIBIL and dispute credit report errors, if any. Make it a regular habit to review your Credit Information Report (CIR) from time to time and try to assess the reasons behind your falling credit score.
2. Avoid purchasing new credit cards
Avoid purchasing new credit cards as it will raise your credit utilization (ratio of credit card balance to the credit limit). It will, in turn, can harm your credit score.
Paying in cash as much as possible can reduce the impact on the credit score though.
3. Pay off dues on time
Your payment history takes care of 35% of the credit score. If you do not pay your dues on time, it affects your credit history and, in turn, your credit score. Therefore, you should take care to pay at least the minimum dues on time, if not the entire amount, to the lender.
It is also essential to monitor your jointly held, guaranteed or co-signed accounts regularly too as you are also partially responsible if a payment is missed in case of these accounts. Anyone of you or the other account holder(s) may miss a payment due to non-receipt of a credit statement, relocation, lender disputes or any other reason. Whatever it may be, the default will be duly reflected in your credit report and will convey the message to the creditors that you are negligent in maintaining a clear credit history. This will negatively affect your chances of accessing credit when you will need it tomorrow.
4. Build a longer credit age
It’s difficult to improve the credit score if your credit history is short enough. One way of building a longer credit age is to cling on to the credit card of a friend/family member (as an authorized user) who has a longer credit history of timely payments.
The longer is your positive credit history; the better will be your credit score.
5. Do not apply for credit accounts too often
It is imperative that you apply for a credit account only when it is necessary. Unnecessary credit can hurt your credit score as it invites too many inquiries into your credit report. It can also tempt you to accumulate debt by overspending.
6. Leave open unused credit accounts
Unused credit accounts add to your available credit and leaving them open keeps your used credit amount on the lower side. This brings your credit utilization ratio down.
7. Clear up collection accounts
Instead of transferring your debt to new accounts, pay it off in time. Speak to the debt collector and get a promise of non-reporting to the credit bureau in exchange for full payment.
8. Have a secured credit card
In a secured credit card, you make a deposit that secures or guarantees the line of credit extended to you from your lender. If you default on your payments, you can cover this card balance from this deposit and this late payment will not get reflected on your credit report.
9. Have patience
Being patient and persistent will improve your credit score in due course. Continue paying your dues on time every month, and it will repair your credit score every time.
10.Get professional help
Professional resources such as AFINOZ.COM are there to assist you. Here you will get expert assistance regarding ways to improve your credit score, at no extra cost.
“Afinoz “is there to take care of your financial health.For any query, feel free to call us at +91 120 411 0376 or fill the blog form.
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