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Paying off all debts on time is one of the most important factors in maintaining a high credit score, and even a single missed repayment or default can severely impact your credit score. Let us understand how you can plan your repayments smartly to improve your credit score and maintain high creditworthiness.

Plan Repayments Smartly

1. Pay All Loan EMIs on Time

  • Try to repay all loan EMIs by the due date, irrespective of the loan being secured or unsecured.
  • All missed or late repayments are reported to all credit bureaus.
  • It reduces the trust of lenders and affects your creditworthiness.
  • In case you make the payment after the due date, the lender may charge a late fee as well.
  • Set a reminder to never miss a due date, and you have adequate funds in your bank account.
  • A credit default can stay in your credit report for up to seven years and reduce your creditworthiness.

Also Read: How Long Does Negative Information Stay on CIBIL

2. Clear All Credit Card Dues in Full

  • Always clear the total amount due for each credit card by the due date.
  • Missing the due date will attract significantly higher interest on your remaining dues as soon as the due date expires.
  • To avoid being reported to the credit bureau, pay at least the minimum amount due (MAD).
  • Even after paying the MAD, your unpaid dues will continue to have high finance charges.
  • You can ask your card issuer to adjust the billing cycles of various credit cards to space out your due dates evenly.

Suggested Read: How to Build a Strong Credit Score with Credit Cards

3. Restructure Your Bad Loans Instead of Settling Them

  • A default or settled account can make it difficult to get approval for loans in future.
  • Settling your credit account reduces your creditworthiness and lowers your credit score.
  • Go for a loan or credit card settlement only as the last option.
  • Most lenders would refrain from approving your credit application in future.
  • A settled account in your credit report leaves you ineligible for pre-approved loan and credit card offers.
  • Instead of settling such an account, request your lender to restructure the loan tenure and rates.
  • Resume regular EMI payments to clear the outstanding balance without fail.
  • Your credit score may start improving after you follow a disciplined credit behaviour in the long term.

Read in Detail: Why should you not Settle a Credit Account

4. Prepay or Foreclose Your Credit Account

  • If you have extra funds, you can prepay your loan whenever possible.
  • Prepayment or part payment is paying off a part of your loan principal in addition to your ongoing EMIs.
  • Most lenders allow multiple prepayments throughout the year and during the loan tenure.
  • You can choose to reduce the tenure or the EMI amount after each prepayment.
  • Prepayment shows your intent to repay the dues and increases the trust of lenders in your credit behaviour.
  • If the lender allows, go for foreclosure of big loans such as a home loan or a loan against property.
  • Foreclosure is paying off the remaining principal amount and closing the loan account successfully.
  • Many lenders charge a fee at the time of foreclosure, so keep in mind these charges at the time of foreclosing your account.
  • Both prepayment and foreclosure generally have a positive impact on your credit score.
  • While going for a new loan, check if the lender charges any fee for prepayment or foreclosure.

Also Read: Best Ways to Improve Your Credit Score

To constantly monitor whether your actions are having a positive impact on your credit score, you should check your credit score and track your report regularly. You can do it for free at Paisabazaar. In case there are errors or you want assistance to improve your score, subscribe to Credit+ and start rebuilding your credit profile.

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