Avoid These Mistakes to Build Good Credit Score
Credit Score is a three digit number depicting credit worthiness. It is based on your credit track record (History of Repayments). If you have used credit wisely, made repayments on time and have no record of settlements, defaults and write-offs, then you can expect a good credit score. Check free credit score at IndianMoney.com.
Credit score is a 3 digit number ranging from 300 to 900, with 900 being the best. Credit scores of 700 and above are considered good and individuals with this score have their loan applications processed quickly. They enjoy waiver on loan processing fee, low interest rates and so on. This is because you have a proven track record of repayments and lenders don’t find you risky.
If you have a bad credit score, it’s because you have a record of missed or delayed payments, write-offs, settlements and defaults. Credit scores of 650 and below are considered bad and lenders hesitate to approve your loan application, as you have bad credit history. It doesn’t matter if you have missed a payment due to illness or carelessness, a miss is a miss! Credit score does not show any mercy. Your credit score drops without any excuse.
If you had handled credit/loan wisely and with utmost care, then you wouldn’t be in this sorry state. You have no one to blame, but yourself. Having a good or bad credit score is totally in your hands.
It’s difficult to avail loans with a bad credit score. Most lenders don’t offer collateral free loans citing poor credit track record. In today’s world, it’s not that difficult to improve a low credit score. You must remember that your credit score does not increase or decrease drastically in a matter of few days, it take months. So, you must have patience when it comes to improving credit score.
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See Also: What are the Different Credit Score Ranges?
Avoid These Mistakes to Build Good Credit Score
You must avoid these mistakes to build good credit score:
- Not checking credit score regularly: You must check credit score regularly. Checking your own credit score is considered a soft enquiry and this has no impact on credit score. You can check your credit score as many times as you want, without worrying on the impact. Check your credit score at least once each month as lenders share credit transactions with credit bureaus like CIBIL on a monthly basis. If you see incorrect details, then you must contact the bank to raise the concern and get wrong entries corrected. Identity theft can be found by checking credit score on a regular basis.
- Missing or delaying payments: When you are on a mission to improve credit score, then it is extremely important to make timely repayments. Missed and delayed payments are definitely going to hamper your credit score. So, make sure you pay the EMIs, well before the due date.
- Submitting multiple credit applications: This is one of the biggest mistakes you can make. Each time you submit a loan application, the lender would check your credit score. This is called a hard enquiry. Hard enquiries are reported to the credit bureaus and have negative impact on your credit report. Multiple loan applications show you to be struggling with finances and hungry for credit. Limit your credit applications and try to be self sufficient.
- Maximum credit utilization: You must not consume 100% of the credit limit offered as this shows you to be short on funds and over dependent on credit. This is a red flag and hampers your credit score. Ideally, you should limit your credit utilization ratio to 30%. Credit utilization ratio shows the percentage of credit utilized against the credit sanctioned.
- Availing unsecured loans even when you can avail secured loans: Under secured loans, you must provide a security or collateral to the lender. Credit bureaus consider secured loans a green signal and this helps improve credit score. Secured loans have a much lower interest rate than unsecured loans, which helps regular repayment and reduces your burden.
- Closing old credit accounts: Credit track record of repayments is one of the major factors affecting your credit score. If you have an old (5-6 years) credit card lying dormant, then you shouldn’t close it down. This might actually work against your credit score as you are putting a full stop to a longer credit history. Start reusing it and make regular repayments. This is good for credit score as there is an active account of longer credit history.
- Cosigning a loan: If you are struggling to improve your credit score, then the worst thing you can do is cosign a loan. Remember that you and the main applicant would be held equally responsible for the repayment of the loan. If the main applicant has taken your help just to meet the income criteria and has not repaid regularly, then your credit score would be impacted. It is advisable to stay away from cosigning a loan when you are struggling to improve your credit score.
See Also: What Is A Perfect Credit Score?
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