Credit score is a three-digit score of your creditworthiness, on the basis of which lenders evaluate your loan, credit card application and their interest rates. Credit bureaus rate you on a scale of 300-900 as per your financial track record; any score below750 usually decreases your chances of getting a loan or leads to higher interest rates.
Here are some tips to help you increase your credit score:
Repay dues regularly
Your payment record contributes about 30-35 per cent to your total score, so timely repayments of debts improve your credit score.
Pay off old debts
Consider paying off any unsecured loans with high interest rates, like credit card dues and personal loans. If required, break your fixed deposits or other low-yield investments to pay off your dues, given that these earn lower interest rates.
Limit credit card utilisation
Avoid exceeding 40 per cent of your credit card limit, as credit bureaus interpret it as credit-hungriness on your part. If your credit card spending regularly exceeds this limit, get your credit limit increased, or get another credit card to meet your increased expenses.
Avoid unnecessary loan enquiries
Fresh loan application generates credit enquiry, which gets recorded in your credit report. Too many credit enquires on your part within a short time frame brings down your credit score. Avoid unnecessary loan enquiries if your credit score is already low.
Monitor co-signed, joint and guaranteed loan accounts
Always check statements of your co-signed, guaranteed or jointly held loan accounts, as you are equally liable for any default or missed payments in those accounts. Such instances adversely affect your credit score.
Review your credit report
It is important for you to check your credit report for any clerical errors. Also, make sure your credit report doesn't reflect any closed loan or paid-off dues as currently active, as it may lower your credit score to a large extent.
By Naveen Kukreja, Managing Director, PaisaBazaar.com
(Published in Financial Chronicle on May 11, 2016)