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If you want to improve your credit score, it will require your time and patience along with correct and positive approach, as it is not an overnight process. Credit score improves gradually and takes around 4-12 months to finally reflect your improved credit score. Previously, there could have been various reasons for your low credit score, such as poor payment track record, high credit utilization ratio, multiple credit products, errors in your credit report, etc. But going further, if you follow all the measures as discussed later in this article. It shall definitely help you to improve your credit score in next few months and secure your financial future in the long run.
Building a credit score can be easy for those who have never defaulted on their payments and have been prudent in repaying the loan. People who have consistently failed in making payments on time and have not been disciplined in repayments may find it tough to build their score. If your credit score is around 650 or below and you take proper measures to build and improve it, you may see a positive impact in few months and a higher credit score by the end of the year. However, the time required for rebuilding your credit score varies on a case to case basis.
It is worth mentioning that lenders prefer those applicants who already maintain a credit score of 750+ and as close to 900. Therefore, it is highly recommended that you should follow these measures to build and improve your credit score beforehand.
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Key Measures To Improve Your Credit Score
The following important and useful measures must be taken into consideration to improve your credit score:
Improving Payment History
By regular and on-time payments of credit card EMIs and loans, your payment history gets improved that eventually results in an increase in your credit score. Even if you miss a single payment of credit card or loan EMIs, your credit history gets hugely impacted which results in the fall of your credit score. Thus, an improved payment history plays the most vital role in building your credit score.
Lowering Credit Utilization Ratio
Credit Utilization Ratio (CUR) is an important factor that influences your credit score. To maintain a good credit utilization ratio, it is advised to use less than 30% of the total available credit limit. Even though using the credit limit in the range of 30-40% may not have an impact on credit score but maxing out your card having a high CUR may surely impact your credit score, negatively. Therefore, to avoid the expense burden on single credit product, it is better to divide the burden by availing multiple credit products, as it helps in reducing the credit utilization ratio.
Maintaining Good Mix of Credit
Mix of credit can be maintained by availing more of secured loans, as compared to unsecured loans. Secured loans, such as home loans or car loans, help to increase the credit score as they are termed as long-term appreciating assets. As the repayment tenure is higher for home loans, it becomes evident that the borrower shall be making regular payments for longer duration to the lender, which will help in maintaining and balancing the credit score.
Avoiding Closure of Older Accounts
Most people have this misconception that closing the less functional or old accounts may help in increasing their credit score, which is incorrect. So, it is always recommended to not close your old accounts or old credit cards, as it negatively impacts your credit score. Older accounts show your long-term association and connection with the banks or NBFCs, which is considered good by the credit bureaus. This further helps in the improvement of your credit score in due coarse of time.
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Regular Monitoring of Credit Report
Keeping a regular track of credit report is an important practice in maintaining and rebuilding credit score. There could be instances of incorrect or inaccurate personal information being present in your credit report, which is supposed to be immediately reported to the credit bureaus by submitting disputes. Error-free credit report can further be checked for managing personal finances and to avoid being a victim of identity theft.
Not Applying for Multiple Credits in Short Duration
Applying for multiple credit products at once depicts you as a credit hungry person, and this credit hungry behaviour is immediately tracked by credit bureaus which further leads to fall in the credit score. Therefore, avoid applying for multiple credit products at once. Even banks and NBFCs doubt in giving approvals to such applicants, as they find a person at high risk who may be unable to pay the loan amount on time and incur losses for the lender.
Also Know: How can I check my credit score for free without affecting it?