Credit score is one of the main factors that help banks determine if loans must be sanctioned. A credit score determines the credit worthiness and debt management capacity. If you want to get a loan sanctioned, then you must have a good credit score.
There are various factors that play an important role in building credit score like credit utilization ratio, payment history and clearing dues and loans. However, if you have a low credit score, there are some tips that help fix credit score by yourself:
Check Your Credit Report regularly: There are various online websites that allow you to check credit score for free. You can check credit score as often as you want. This helps keep track of credit ratings. By staying informed on credit score, you can take better decisions. You can take the necessary steps to improve credit ratings. You can also get the errors rectified and keep hard queries at bay, by checking credit report online.
Improve Your Payment History: If a person has a history of repaying loans and credit card dues on time, then the person is likely to have a high credit score. Late payment of dues or loan defaults can bring down credit score. To get a good credit score, make sure to pay all bills on time. Pay back the outstanding dues on your credit card. If you are paying the minimum due, then that is not enough. Clear all your dues as early as possible to avoid a bad credit score.
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SEE ALSO: Credit Score India
Know Your Credit Utilization Rate: Credit utilization ratio is a key factor in determining credit score. Generally, a good credit utilization ratio is less than 30% (CUR < 30%). Know your prescribed credit limit. Maintain a good credit utilization ratio, by clearing all debts, by paying more than the minimum amount due each month. Always keep the credit utilization ratio below 30%. Make sure not to come too close to your prescribed credit card limit often, as it will have negative impact on your credit score.
Consider How Many Credit Accounts You Have: Most of the credit bureaus keep track of the age of the credit account and how the balances and transactions are carried out in that account. The longer the history of the account, the better it is for the credit score. Close unused accounts as it saves you from incurring annual fees and also reduces the risk of frauds on these accounts. However, try to keep your oldest account operational and active for as long as possible.
Think On Your Credit History: To improve your credit score, make sure credit reports are accurate. Carefully evaluate the points that you must improve. Make a List of various aspects that you need to work on. Start by working on the short term goals that immediately help improve your credit scores.
Be Wary of New Credit: Make sure you have paid all loans and dues before availing a new loan. Make sure not to apply for multiple loans with different banks at the same time. Several hard enquires conducted by the banks can severely impact credit score. Multiple loan applications tell banks you are in financial trouble and could struggle with repayments. If you apply for multiple loans at the same time, you are viewed as credit hungry. Banks refrain from lending money if they view you as credit hungry.
Listed below are some additional tips that help build a better credit score:
Open a Secured Credit Card: One of the most important criteria of a secured credit card is that it is issued only against a fixed deposit with a bank or financial institution.
Secured credit card is offered to an individual who is unable to obtain a normal credit card and has a fixed deposit account with that specific bank. These cards are secured as the bank has the right to liquidate the fixed deposit to recover dues. Certain private sector banks and a few public sector banks provide the option to avail secured credit cards against fixed deposit accounts.
Hard enquiries: when an applicant applies for a loan or a credit card, the bank or the lending institution raises an enquiry for the credit information on the borrower from the credit bureaus like CIBIL and Experian. This enquiry is known as hard inquiry. Hard enquiries generally lower credit score by 5% to 10%, each time they are made by the bank.
Credit mix: Credit mix refers to the types of loan accounts that make up credit report. A credit mix includes maintaining credit cards and having loans like personal loan or car/home loan. Maintaining a good credit mix shows how responsible you are in maintaining different types of credit and paying off multiple loans and credit card dues. Credit mix has 10% weightage in credit score. Keeping debt levels low and paying off dues on time are important steps to improve credit scores.
Having a healthy mix of credit, like revolving and installment credit, can improve credit scores.
SEE ALSO: Understand Credit Score
Building a credit score is a slow process that cannot be achieved over a short time. Credit score is a reflection of how responsible you are towards debt and repayments. There are no short cuts to instantly increase credit score.
Credit report shows past repayment record as well as current credit worth and financial standing. To repair credit score fast, you must be patient and sort out short term goals that help improve credit score to an extent. Patience is the key when it comes to repairing credit score.
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