Your credit score speaks up for your creditworthiness and hence, is much more than a number. If you aspire to get credit for your future needs, you need to know these 4 easy steps to improve credit score easily. A good credit score signifies good financial health which is something we all want need.
There are several benefits one can reap with a good credit score.
- Firstly, your image in your lender’s eyes is painted well.
- Secondly, the increase in credit score increases the likeability of getting loans approved at lower interest rates. The terms and conditions are also likely to be in favor of you.
- Getting a credit card becomes easier with a better credit score.
Just as the list of advantages could go on, a bad credit score could possibly land you in problems you don’t want to encounter. Failing to maintain sound financial health may bring unpleasant surprises of rejected loan applications and perhaps, even worse.
How to improve your credit score easily?
Let us first understand what factors make up the credit score so we know the areas that need attention.
No matter which CRA (Credit Rating Agency) it is, the factors that impact the credit score are mainly among the following six. What changes is their weightage as different organizations view these factors differently.
- Credit payment history
- Credit utilization
- Credit mix
- Duration of credit history
- Frequency of applications of credit history and,
Yeah, that’s pretty much about your financial history. Thus, in order to have a good credit score, you’ve to work on your financial health. There’s NO shortcut!
A lot of people use credit score and CIBIL score interchangeably. Well, it’s because CIBIL is one of the most prominent Credit Rating Agency in India. Thus, the CIBIL score is considered by most lenders.
So, let’s go specific by understanding how CIBIL ascertains the credit score.
Let’s take these one by one.
1) Previous credit payments– A good credit history can be a real asset as your past records play the most important role in determining your creditworthiness.
How to get this right?
Clear your payments timely so you don’t have due debts.
Imbibe regularity because default payments or EMIs can take a toll on your CIBIL score .
Monitor your co-signed, joint and guaranteed accounts regularly to ensure you don’t miss your payments.
2)Credit exposure- This is also called as Credit Utilization Ratio, CIBIL is concerned about this as this gauges your credit hunger, which should ideally be less and under control. Makes sense, right?
So, you’ve to prove you don’t rely highly on credit.
Be prudent enough to not to exceed your credit usage. In fact, as per experts, you should abstain from exceeding one third of your credit card limit. Be pro-active and don’t let your problems happen in the first place. Track your budget so don’t land in financial struggles.
3) Credit mix and duration- In CIBIL’s opinion, maintaining a healthy mix of credit is pretty important. So, create a balance between your secured (home, car loans, etc) and unsecured credits (personal, credit cards, etc). Too many unsecured loans aren’t good for your financial health.
Credit history’s length also matters because the more experienced are likely to be considered more capable of handling credit.
So, starting at an early stage would really help you.
Also, try to apply for credit in moderation as this signifies good discipline.
4) Other factors- These mainly include loan inquiries and one’s credit report.
Too many hard inquiries aren’t perceived as a good sign as those indicate likeliness of increasing loan burden in the future. So, do not apply for multiple lines of credits altogether. If your loan application has been rejected, you should wait for some time and then apply somewhere else
Maintaining financial health is a continuous process you have to be regular with. Be regular and check your CIBIL report regularly to clear out the discrepancies (if any) at the early stages.
Be disciplined and off you go towards a good credit score and sound financial health!