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    7 ways to improve your credit score

    7 ways to improve your credit score

    7 ways to improve your credit score
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    By CNBCTV18.com Contributor  IST (Published)

    Mini

    While building your credit score may be easier, it is extremely important to keep a tight check on the way you interact with your credit products as they will directly impact your credit score.

    It’s highly likely you have seen several articles in a lot of places of late which mention ‘credit score’, but what it is, why it is so important and how it impacts your life are topics that still lack awareness and understanding.
    A credit score is a three-digit figure that determines your creditworthiness. Ranging between 300 and 900, it is an important parameter factored in by lenders who would be assessing you as a potential borrower. Just as an ECG test is an important indicator reflecting the health of your heart, a credit score is among the most significant indicators of your financial health, as it showcases your attitude towards credit.
    Your payment history has a huge influence on your credit score. It is all about a simple rationale – if you are not diligent enough to pay back your loan EMIs and credit card dues, then there is a high probability of you defaulting on your new loans. Thus, people with good credit scores can seamlessly avail of lucrative credit products ranging from loans to credit cards and are also rewarded with attractive benefits such as low-interest rates and flexible tenure among others. Some of the other key factors that directly influence your score include - credit utilisation, credit history, credit mix, and new credit.
    While building your credit score may be easier, it is extremely important to keep a tight check on the way you interact with your credit products as they will directly impact your credit score.
    Below are some tips that can go a long way in helping you improve and maintain your credit score -
    1. Timely repayments
    Whether it is your housing loan EMI or your monthly credit card bills, timely payment is critical to ensure a high credit score. It is therefore in your best interest to set reminders so as to ensure that you do not miss on any of your due dates which if done can hamper your credit score.
    Another way to ensure that you don’t miss on your payments is by availing an ECS (Electronic Clearing Service) scheme. An automatic bill payment from your bank’s net banking will ensure your loan EMIs are debited directly from your account as per the mandate given to the lender. This will not just ensure timely payments but will also ensure your bank account has sufficient funds prior to the EMI date.
    2. Tight check on credit card utilisation
    If you like to splurge and exhaust your credit limit every month, you have a high credit utilization (Percentage of your credit limit you’ve already utilised) and this will significantly impact your credit score. Using your credit card to grab the best offers and cashbacks is definitely rewarding but only until you pay your dues on time. Paying the minimum amount and rolling over your dues to next month is just not advisable as it incurs interest charges and increases your overall credit utilisation which in turn will severely impact your credit score.
    In terms of your spending, do not max your available credit limit at any given point in time and keep your outstanding balance low across all cards. The lower your credit utilisation, the higher your credit score.
    3. Do not apply for multiple credit products at once
    Every time you apply for a new loan or any credit product; banks or financial lenders will check your credit score with one or more credit bureaus. This is recorded as a ‘Hard Enquiry’, and too many such hard enquiries can cause your credit score to drop. Apply for multiple loans or credit cards only if absolutely necessary or an emergency.
    As a consumer, you can also access your credit score and credit report. This is recorded by the bureaus as a ‘soft Enquiry’, and does not affect your score. In fact, checking your credit score and credit report regularly will help you keep a better track of it and take timely action.
    4. Check your report regularly and report for discrepancies
    No matter how advanced technology is employed, a system can never be perfect. It is possible that despite responsible credit behaviour from your side, an error in your credit report is affecting your credit score.
    It is therefore extremely important to keep a regular check on your credit report so as to locate and dispute any errors immediately. As soon as you locate a disruption, raise a query with the bureau for every item pertaining to any credit product, track the query, and seek a resolution from the bureau.
    5. Prepay your loans
    As and when you get additional funds either in form of a bonus or other income, it is advisable to prepay your term loans. This will not only reduce your debt but would also give a boost to your credit score.
    6. Start early and maintain repayment track
    As a youngster, it is advisable to start building your credit history early in life by opting for a credit card. You can also opt for a secured card if unsecured card is not available. Starting early will ensure you build on to your credit history as you age which will boost your score.
    7. Opt for a secured credit card
    While you may wish to use a credit card but you are not getting it from your bank, then you should consider opting for a secured credit card.
    These credit cards are issued against some form of collateral, generally, a Fixed Deposit (FD) held with the issuing bank or financial institution, and have a lower credit limit (anything between 75-110 percent of the collateral amount).
    If you have been declined a loan/card owing to a poor credit score, then a secured credit card can help you build your credit score and credit history if you keep a diligent check on your credit behaviour.
     
    The author, Anurag Sinha, is CEO and Founder at OneScore & OneCard
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