Improving your credit score is not an overnight process, it requires both time and patience. There is no easy way to improve or repair your credit score. Therefore, getting impatient after seeing your low credit score is not a way out, but applying a correct approach in getting it increased will be a wise and responsible decision.
People with low credit score generally have difficulty in getting a loan sanctioned under their own name or face problem in availing a new credit card, as each and every financial institution thoroughly checks your credit report and specifically credit score, before offering you any lending product. A bad or low credit score can hamper your creditworthiness and can further increase your financial problems. Your credit score is increased or decreased because of several factors, such as debt amount, payment history, new credit and length of credit.
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Credit scores of individuals with no credit history or nil usage of credit can be improved in few months, but individuals with loan debts or missed EMIs (Equated Monthly Instalments) payments can get their score improved, relatively in lesser time. Presently, there are four major credit bureaus that provide credit scores to Indian customers, such as TransUnion CIBIL, Experian, Equifax and CRIF High Mark. Every time lender reports your credit report to the credit bureau, your credit score changes.
What is the Purpose of Credit Scores?
The primary motive of credit score or credit report is to assist banks to decide if the person is worthy to access a loan. Hence, your credit score plays an essential role in fulfilling your financial needs, since it functions as the foremost judging aspect for the lender. The better the score, the higher you build chances for your credit card or loan to get approved.
How to Get Your Credit Score Up?
- There are several people who hold a poor credit or CIBIL score. For such individuals acquiring an approval for a credit card or other financial aid can become a significant problem. If you have a lower CIBIL record, then the chances of acquiring a loan or credit card accessibility can be improved only when you try to enhance the credit score to a satisfactory level mentioned by the banks.
- Most people aren’t aware of this fact, but it takes a minimum of 12 to 18 months to improve one’s credit score. Further, it is decisive to spot the measure of damage on your score that behaves as a factor to determine how long it would take to enhance your credit ratings. In India, it is seen that banks and financial companies do hold a different CIBIL score range for different products.
Let us understand some of the basic features related to credit score and ways to improve it.
Credit Score is a 3-digit numeric that ranges between 300-900, which depicts your creditworthiness and summarizes your financial repayment capability and capacity. According to credit bureaus any score close to 900 is considered good, however score above 750 is also marked as decent enough to make you eligible for numerous financial products. Credit score below 750 requires time to increase but still there are possibilities for an individual to make it reach to the mark of 750 and above.
Below mentioned are the important measures that help 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 single payment of credit card or loan EMIs, your credit history gets hugely impacted that 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 is the second most important factor that influences your credit score. To maintain good credit utilization ratio, one needs to use less than 30% of the total available credit limit. Use of credit above 30% could lead to decrease in your credit score. Therefore, to avoid the expense burden on one single credit product, it is better to divide the burden by availing multiple credit lines, as it helps in reducing the credit utilization ratio in near future.
Maintaining Good Mix of Credit: Mix of credit can be maintained by availing more of secured loans, as compared to the unsecured loans. Secured loans, such as home loan helps in the increase in the credit score as they are termed as long-term appreciating asset. As the repayment tenure is higher for home loan, it becomes evident that borrower shall be making regular payment for longer duration to the lender, which will help in maintaining and balancing the credit score.
Avoiding Closure of Older Accounts: Most of the people have this misconception that closing the less functional or old accounts may help in the increase of their credit score, which is false. 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 (Non-Banking Financial Companies), which is considered good by the credit bureaus. This further helps in the improvement of your credit score.
Regular Monitoring of Credit Report: Consumers need to regularly check their credit reports, as it is an important practice in maintaining and rebuilding their credit score. There could be instances of incorrect or inaccurate personal information being contained and displayed on 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 Credit Lines: 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 to rebuild your credit score. Even banks and NBFCs doubt in giving approvals, as they find a person at high risk who shall be unable to pay the loan amount on time and incur losses for the lender.
Using atleast one Credit Card: Individuals who are new to credit or do not have credit history needs to use atleast one credit card to firstly have a credit score generated for them. Once they have a credit score, availing new lending products shall become easier in the near future.
Do not exhaust available Credit Limit: If an individual possesses only one line of credit then he/she shall tend to exhaust his/her available credit limit because of necessary expenditure. This expenditure and burden on one credit product eventually results in the downfall of credit score. If in case you want to add any credit line, then avoid unsecured loans as availing them also leads in the reduction of your credit score.
Hence, by now you must be having a better insight on how your credit score gets impacted positively or negatively. Thus, improving your credit score is about making wise financial decisions and having the time and patience to make them give positive results.
Additional Tips to Raise Credit Score
If you are still searching for ways on how to increase credit score, then here are some additional tips that can be considered and implemented for refining credit rating scores.
- An individual’s credit score is affected if he/she enquires about other credit cards. Therefore, one should avoid this practice as quickly as possible. An individual can investigate about a credit card through the online platforms conveniently without actually interacting with the different credit card companies.
- An individual needs to prioritize and balance things which are necessary to purchase and desired to purchase. But how to raise credit score fast? You should maintain a list of all the items which you need to purchase and lessen the count of items as much as possible.
- Reaching the credit limit can backfire at times. Therefore, keep a buffer limit and never cross it. For individuals, it is sensible if they can save some money to represent higher savings over time. This practice would lead to an improved credit score.
- Make sure you do not borrow more for the repayment of loans and bills until and unless it is urgently required.