Credit score holds a crucial role when you apply for any credit option, may it be a loan or credit card. It is a three-digit number which shows your creditworthiness to the financial institutions. A credit score is calculated using your past credit history, which holds information like the number of credit cards or loans you hold, repayment history, etc. India includes four important credit information companies like Experian, CIBIL, CRIF Highmark and Equifax.
A high credit score of 750 and above enhances your potential to avail credit card or loan, while a low credit score completely ruins such chances. Financial institutions do not prefer giving credit cards or loans to individuals with poor credit scores owing to their poor financial habits. Despite a low credit score, if you avail of a credit card, your credit card limit might be below. And in case you avail of a loan, your rate of interest will be high.
Questions like ‘how to check my credit score, how to improve a poor credit score, the appropriate cibil score for home loan etc., are few of the most searched on Google.’ Here, in this article, let us look at different ways to enhance or build your credit score.
Here are ways to build your credit score:
Review your credit report periodically
One of the crucial things you should do is ameliorate your credit score to review your report. Doing so would assist you to figure out all errors in your report. In the case you find any discrepancy in your report, you should get the same corrected instantly. As credit score is calculated based on the data listed in the report, you must make sure that the report is free of mistakes.
Pay the outstanding dues
If you have any dues or outstanding bills to be paid, you should pay them by the due date to repair. Doing so helps to form a good credit score. Repayment history is one of the crucial parameters that are considered while calculating your score. If you have any history of late payment, then your credit score will reduce and vice versa. Also, repaying just the minimum due amount on credit cards should be avoided as it enhances the outstanding balance of your credit card that enhances your chances of crossing your CUR limit, which indirectly lowers your score. Thus, try to repay your full and ensure using the credit card just as per your repayment capacity. Activating an auto-debit facility ensures timely deduction of your dues from your savings account.
Credit utilisation below 30%
This is another important factor this is factored in when calculating your credit score. The credit amount that is available to you vs how much of the amount you are using reveals your dependency on the credit money. Many advise that individuals should keep their CUR within 30 %.
Do not close any of your old credit card accounts
Few people usually tend to close their old accounts or those which are deactivated from their report to make it appear good. Others may even try to get their old credit card accounts removed from their reports once repaying all the dues. It might not be a smart thing. Though we agree negative things like this look bad, they are removed automatically from their report after a time period. Getting the old accounts removed might not have an excellent repayment history. Moreover, if you pay your debts, then you must ensure to keep them in your credit report because it improves your credit score and reveals you are creditworthy.
Plan out your credit
Many of the people whose score drastically falls are the ones who do not plan out their finances properly. If you apply for plenty of credit cards, only enhance your credit card limit, but you are unable to repay your dues within time owing to enhanced spending. This may leave you with a higher outstanding balance with a history of missed payments that lower your score by a huge margin. Also, when applying for the unplanned credit option can leave you in a bad state in case you fail to repay your dues. Thus, it is crucial for you to plan out your credit and apply for the credit option only. It is important to do so when you are sure to repay the borrowed amount.
Note that credit score cannot get repaired in a day. It needs patience, time, and planning. Once your score ameliorates, try not to make any error or discrepancy that can harm it. If you do not hold any credit score at all, try building the same by applying for a regular credit card and using it in a disciplined manner.
Restrict the number of credit card enquiries
There are two types of enquiries that get performed – soft and hard enquiries. A soft inquiry is when you review your own credit. At the time when a potential credit card company or lender carries out this check, it is called a hard enquiry. Few hard inquiries can lower your credit score by some margin. However, in the case of multiple hard enquiries, your credit score may fall by a wide margin.
Consolidate all your debts
If you have huge debt on your shoulders, you can use it to your advantage. You can consider consolidating all your debts into one. Doing so helps you not just repay your loan simply but also improve your score. When consolidating all your loans into one, ensure to avail a loan with a lower rate of interest. Doing so would help to lower down your debt faster. In the case of credit card outstanding balances, you can consolidate the debt by availing credit card balance transfer option. By opting for this route, you will get a promotional period of up to six months, which is usually at zero interest.
David Tobin did his degree in psychology at the University of Edinburgh. He is interested in mental health and well-being.
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