A credit score is a number used by banks and other lending institutions to understand a person’s creditworthiness. It is a number between 300 and 900 and is computed by credit information bureaus. In India, four licensed credit bureaus calculate the credit scores – Experian, CRIF High Mark, Equifax, and TransUnion CIBILTM.
The credit score shows how well individuals can manage their finances and reflects their ability to repay borrowed credit like loans. A credit score of 750 plus or one close to 900 ensures a high chance of loan or credit approval. Let us now understand credit score ranges and what each content reflects.
How To Improve Your Credit Score?
Achieving a good credit score is not an easy process. But, those who strive to improve their credit score consistently can see the results. Here are some ways to get there.
- Paying your bills on time:
It is important to pay your EMIs and credit card bills on time. Having a long history of timely payments will give you an excellent credit score. Timely payments are one of the most important factors considered when computing your credit score. To avoid missed payments, you can set up auto payment alerts (But you must ensure not to overdraft your account). If you are not able to pay any bill on time, then you can reach out to your credit card issuer and discuss the issue with him. You can request him to give you some more time.
- Have a healthy credit mix:
If you have not taken a loan and have also not used a credit card so far, then you will not have any credit history. So, it would be best if you borrowed a proper mix of secured and unsecured loans to build your credit profile. This will help you get personal loans at lower interest rates and higher loan amounts.
- Monitor your credit report regularly:
The credit bureau may have sometimes recorded incorrect information or may not have updated details in your credit report. These may be bringing down your credit score. In those cases, you must file a dispute with the respective credit bureau and resolve these discrepancies. This resolution will improve your credit score.
- Use 30% or less of your available credit:
Your credit utilization ratio is one of the most important factors constituting your credit score. Keeping it within 30% is important to getting top scores. A lower CUR implies a higher credit score.
- Limit the number of hard inquiries:
There are two types of inquiries into your credit history: Soft inquiries and hard inquiries. A soft search is something that is done when you are checking your credit, giving a potential employer authority to check your credit, checks done by financial institutions with which you are doing business, and credit card companies that match your file to see if they can give you pre-approved credit offers. This type of inquiry will not affect your credit score. On the other hand, hard questions will affect your credit score. Hard questions are asked when you apply for credit and the creditor pulls out your credit file. Hard questions will show up on your credit report, and they will affect your credit score. Having too many hard questions will drastically bring down your credit score.
- Keep Old Accounts Open and Deal with Delinquencies:
The age of your credit history or the length of it is an important factor in determining how lenders look at you when giving loans. The higher your average credit age, the more favorably you appear to lenders. So, don’t close old accounts that have a positive credit history with timely repayments. As for delinquent accounts with missed or delayed payments, repay the amount due. Then, make sure that you repay these accounts on time. That will not erase the late fees but can show your payment history in a positive light in the future.
The credit score is an important factor that helps you get future credit easily. Even if you are able to get loans or credit cards with a low credit score, the interest rates will be high, and the credit limit will be lower, respectively. Thus, it is always essential to have a good credit score. You should also maintain your credit score once you have achieved a good score.